35 non-deductible business expenses you can’t write off

Many of the business expenses your company incurs over the course of a year are deducible. That means you can write them off as tax deductions to lower your tax bill.

However, not all business expenditures qualify as a tax write-off. So, how do you know the difference when writing off the wrong expenses could result in potentially costly penalties and fines?

In this article, we define what a non-deductible business expense is and highlight 35 common examples you’re likely to come across. We also discuss the importance of keeping your expenses organized and offer advice to help you better manage your expenses.

What is a non-deductible business expense?

Simply put, a non-deductible expense is any business-related expense that you can’t write off on your tax returns. But what does that mean exactly?

Many of the costs associated with running a business are tax-deductible, so you can write them off on your business tax returns. Examples of deductible business expenses include many operating expenses, general and administrative expenses, payroll expenses, some travel expenses, and costs associated with many other business activities.

When you write off a qualified expense, you effectively lower your taxable income for the year, which in turn lowers your business’s tax liability.

The Internal Revenue Service (IRS) provides guidelines on what qualifies as a deductible expense. For tax purposes, the IRS states that qualifying business expenses must be both ordinary and necessary:

• An ordinary expense is common and widely accepted for businesses in your industry
• A necessary expense is helpful and appropriate for your business (but not necessarily indispensable)

With all that said, a non-deductible business expense is any expense that doesn’t meet the IRS’s criteria of being both ordinary and necessary, and which can’t be written off to lower the taxes your business owes for the year.

This includes personal expenses, which aren’t tied to your business in any way. But it can also include some expenses that do serve legitimate business purposes, like certain taxes and legal fees. This is where things get complicated.

Examples of non-deductible business expenses

While the list below isn’t exhaustive, it’s meant to highlight some of the most common expense categories that are typically considered non-deductible. Where possible, we’ve also included examples under each category to help you avoid mistakenly writing off expenses that don’t qualify.

Personal expenses

Personal and family expenses, by their very definition, aren’t business expenditures and therefore can’t be deducted from your taxable income. Certain expenses are simply a part of life, but even if you think they help you do your job as a small business owner, you can’t write them off.

Some common examples of personal expenses include:

• Clothing (unless it’s a branded uniform or safety gear)
• Childcare expenses
• Haircuts and grooming costs
• Household supplies
• Personal groceries and meals
• Personal entertainment
• Non-business-related travel expenses
• Travel expenses for non-business associates (like family members)
• Mileage on a personal vehicle for non-business activities
• Personal cellphone or residential landline

What if you use the same vehicle for both your business and personal use? Only the mileage associated with your business can be deducted from your business income, so it’s important to keep a detailed mileage log of your vehicle use. This is also true for other shared resources, such as a mobile data plan that serves double duty between your business and personal life.

Commuting costs

Any costs associated with your daily commute to and from work are non-deductible, whether you drive or take public transportation. After all, in most cases, the average taxpayer isn’t able to write off such expenses, so why would you, as a business owner?

Some examples of non-deductible commuting expenses include:

• Mileage to and from work
• The cost of gasoline
• Bridge and tunnel tolls
• Parking expenses
• Train tickets
• Subway fare
• Bus fare

Other travel costs that are directly related to your job are deductible. This can include mileage, plane tickets, subway fare, and other expenses related to common business trips, when you or your employees visit a client, partner, vendor, or distributor; attend a work meeting, or conduct other business-related activities.

Certain types of insurance

Certain insurance premiums related to your business are deductible, including general liability insurance, professional liability insurance, malpractice insurance, and commercial property and auto insurance. Likewise, certain types of insurance premiums you cover for your employees may be deductible, such as health insurance and unemployment insurance.

Unfortunately, there are exceptions. Insurance premiums related to the following types of coverage are typically not deductible:

• Life insurance policies where you are the beneficiary
• Life insurance policies taken out to secure a business loan
• Disability insurance that replaces your income if you can’t work

Many entertainment costs

Prior to 2018, business owners could deduct up to 50% of certain entertainment expenses they incurred as a part of their business—whether they were for entertaining customers, clients, partners, or other employees.

The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated these tax deductions, making costs related to entertainment, amusement, and recreation non-deductible.

Just a handful of examples of entertainment costs that aren’t deductible include:

• Tickets to sporting events, movies, or theaters
• Social clubs, athletic clubs, country clubs, or sporting clubs
• Vacations and trips
• Amusement parks
• Bars and night clubs

The tax law still allows you to deduct up to 50% of business meals so long as they meet certain conditions.

Gifts over a certain dollar amount

Do you frequently give gifts to your clients, employees, or partners? The cost of business gifts are deductible—but only up to $25 per recipient, per year. Anything you spend beyond this limit is considered a non-deductible expense.

It’s also important to note that if you’re married, the same $25 limit applies to both you and your spouse—it doesn’t double to $50 if you and your spouse both make a business gift to the same person.

As one final point of distinction, if an item could be considered either a gift or entertainment, the IRS considers it to be entertainment, which would be non-deductible.

Fines or penalties

If your company incurs a penalty or fine in the course of doing business, you can’t claim those fees as a tax deduction. Examples include:

• Late fees when filing taxes for your business (for both federal and state tax)
• Parking or speeding tickets received while on the job
• Fines levied for workplace safety violations by organizations like OSHA

Political contributions

Many businesses make political contributions to candidates they believe would be good for their industry, the economy, or for businesses in general. However effective these lobbying expenses may or may not be, political contributions made by businesses are non-deductible. This includes donations made to support:

• Political candidates
• Political campaigns
• Political action committees (PACs)
• Political advertisements

Charitable donations

Charitable contributions may or may not be deductible, depending on how much you give and your business structure.

If your business is incorporated as a C corporation, you can deduct charitable donations up to 10% of your company’s taxable income each year. (As a note, this limit was temporarily increased to 25% in the 2020 and 2021 tax years.) You can carry over excess charitable contributions to the following year.

For all other business entities—self-employed individuals and entrepreneurs, sole proprietors, LLCs, S corps, and partnerships—charitable contributions aren’t a deductible business expense. However, you can claim these contributions on your individual tax return so long as you claim itemized deductions.

Other non-deductible expenses

Some other non-deductible expenses that don’t easily fall into one of the groups outlined above include:

• Some taxes: Depending on the type of business you own and where you live, you may be entitled to deduct some state, local, and foreign income taxes when filing your business’s federal tax return, but limitations do apply
• Certain legal fees: While many legal fees are tax-deductible, legal expenses related to purchasing property for your business are non-deductible‍
• Club memberships: Club dues are non-deductible. This includes dues to clubs that can be considered to benefit your business, such as hotel clubs, airline clubs, and other travel-related clubs.

How to record non-deductible expenses

Just because you can’t deduct a business expense on your taxes doesn’t mean you shouldn’t record it.

To record a non-deductible business expense in your expense management software, you simply need to flag the expense as such. In some cases, this will be a built-in option. In others, you may need to create a custom expense type or subtype, which you can then use to flag all non-deductible expenses to make reporting easier.

Even if a particular expense isn’t deductible, it may still be reimbursable if incurred by an employee, so you’ll need a clear and accurate record. Plus, by recording your non-deductible business expenses, you can track how your business spends money over time and potentially identify areas to cut back so that you’re retaining more profit.

In some cases, you may still need to report your non-deductible business expenses on your tax forms even though they won’t reduce the amount of taxes you owe. To do so, you’ll need to fill out IRS Schedule K-1, box 18, Code C. This is particularly important if your business is incorporated as a partnership.

The importance of valid expense receipts

In many cases, you won’t be able to determine whether an expense is deductible or non-deductible unless you have an expense receipt to document the purchase. That means you need a way to organize and save receipts for all your business expenses—especially employee expenses.

Consider an example. One of your employees submits an expense reimbursement request and attaches a non-itemized receipt as documentation. In this case, you have no way of knowing exactly what the employee purchased, so you can’t tell whether the expense is tax-deductible.

If the expense is valid, you could wind up leaving money on the table if you don’t write it off. If you write off the expense and it turns out to be non-deductible, you could face serious ramifications if your business ever gets audited. Neither option is ideal.

That’s why you need a comprehensive expense policy that clearly spells out the documentation requirements for business expenses. It’s best practice to require itemized receipts for every purchase so you can avoid situations like the example above. You should also look into apps for scanning and storing receipts to make the process easier for everyone involved.

Why you need to track all your business expenses

As we’ve already covered, if you mischaracterize non-deductible business expenses—even accidentally—it can lead to serious repercussions. These can include an IRS audit, legal investigations, fines and other penalties (up to $500,000 per instance), and even prison time (up to three years per instance).

But you can take steps to reduce your risk of making such a costly mistake. Start by establishing an internal process for tracking all your business expenses. This should include a plan for collecting and organizing your business receipts so that you always have a paper trail in the event of an audit.

For particularly complicated returns, it might be a good idea to work with a tax professional to ensure that you’re properly characterizing all your expenses and that you’re claiming all the tax credits and other deductions your business qualifies to receive.

Simplify business expense tracking with Ramp

With Ramp’s expense management platform, you can easily categorize your business expenses as you incur them, making it easier than ever to distinguish between deductible and non-deductible expenses when filing your business taxes.

Our modern finance platform eliminates the need for multiple tools. Track your company’s spending, scan and save receipts, generate reports, and run projections all from a single system designed to help you run your business more efficiently.

Businesses that use Ramp save time and money. Watch a demo video and see how Ramp customers save an average of 5% a year.