What Business Expenses Are Tax Deductible in 2025?
As tax season approaches, business owners are asking:
“What expenses can I actually deduct on my 2025 tax return?”
The answer isn’t always as simple as it seems. While many costs feel “business-related,” the IRS applies a more specific standard: expenses must be both ordinary and necessary.
At THF (Thomas Howell Ferguson), we help businesses avoid common deduction mistakes, especially those related to overreporting, poor documentation, or confusing investment activity with business operations.
Understanding “Ordinary and Necessary” Expenses
To qualify as a tax deductible business expense, a cost must meet both criteria:
- Ordinary: Common or accepted in your industry
- Necessary: Helpful or appropriate for your business
Example:
A landscaping company that purchases gas and mower blades is incurring ordinary and necessary costs.
🚫 But:
If that same company upgrades to ultra-premium, top-of-the-line gear far beyond its business needs, the IRS may determine the purchases were not necessary and deny the deduction.
🧾 Pro Tip: The IRS also requires you to substantiate expenses with documentation. No records = no deduction.
What the Tax Courts Say About Deductible Expenses
Case 1: No deduction for self-performed labor
A business owner tried to deduct the value of his own time spent developing software. The court disallowed it, stating that only paid or incurred costs qualify, not personal labor.
Case 2: Investment activity ≠ active business
Another taxpayer owned real estate but didn’t actively manage or operate it as a business. The court ruled that the expenses were investment-related, not business expenses, and denied all deductions.
Key issue in both?
Lack of substantive records and evidence of an active, legitimate business purpose.
Read more on IRS rules for business deductions
2025 Deductible Expense Examples (With Substantiation)
Here are common deductible expenses if properly documented:
- Business meals (with client name and meeting notes)
- Travel costs (with dates, location, and purpose)
- Office rent and utilities
- Software and subscription tools
- Employee wages, payroll taxes, and benefits
- Equipment purchases under Section 179
Not sure about a purchase? Ask:
Was it ordinary in your industry?
Was it necessary for your operations?
Can you prove it with receipts or logs?
Don’t Lose a Legitimate Deduction Over Poor Records
The biggest mistake we see? Businesses losing valid deductions because of weak documentation.
If you’re unsure whether an expense qualifies or you’re worried about how to report it talk to a CPA before you file.
At THF, we’ll help you:
- Identify what qualifies for deduction
- Gather and organize records before filing
- Avoid IRS red flags that trigger audits
- Separate business from investment or personal activity
Schedule a consultation or visit www.THF.cpa to get help before tax season gets hectic.
