What You Can’t Deduct: Small Business Expenses That Don’t Qualify (2025 Guide)

Introduction

Running a business comes with plenty of tax advantages — but not every expense is deductible. At Deductions & Co., we help entrepreneurs avoid costly mistakes by clarifying what the IRS allows — and what it doesn’t.

According to IRS Publication 334, these are the most common expenses small business owners try to deduct (but shouldn’t).

1️⃣ Personal & Living Expenses

It’s tempting to mix business and personal, but the IRS draws a firm line. Everyday living costs — like groceries, clothing, or personal rent — are not deductible.

Even shared-use items (like your phone or internet) must be clearly divided between business and personal use.

💡 Pro Tip: If you use your phone 70% for business, only that portion is deductible.

2️⃣ Commuting Costs

While business travel qualifies for deductions, commuting to and from your regular workplace does not. Gas, tolls, and parking for your daily office drive are personal expenses.

✅ However, if you travel from your office to meet a client or attend a business event, that trip counts as deductible business mileage.

3️⃣ Fines & Penalties

Got a speeding ticket on your way to a meeting? Or paid a late penalty on your taxes? Unfortunately, fines and penalties are never deductible.

The IRS won’t let you write off costs from breaking laws or missing deadlines — even if they happened during business activity.

4️⃣ Political & Lobbying Costs

Supporting a political cause or candidate is your right — but not your deduction. Contributions to campaigns, lobbying efforts, or costs for political events are strictly non-deductible.

5️⃣ Club Dues & Memberships

Joining a country club, gym, or social organization for networking might feel like business development, but the IRS disagrees.

❌ Membership dues for social, athletic, or recreational clubs are not deductible.
✅ Exception: Fees for professional associations, trade groups, or Chambers of Commerce are deductible, as they directly support your business activity.

6️⃣ Entertainment Expenses

The IRS once allowed partial deductions for entertainment, but those days are gone. Tickets to sporting events, concerts, or shows — even with clients — are non-deductible.

✅ Good News: Meals with clients remain 50% deductible if business is discussed and the meal isn’t extravagant.

7️⃣ Capital Expenses (Unless Depreciated)

Big purchases — like a delivery van, computer system, or office furniture — can’t always be deducted all at once.

These are capital expenses that must be depreciated over time unless they qualify under Section 179 or bonus depreciation rules.

8️⃣ Illegal Payments

It goes without saying — bribes, kickbacks, or illegal payments are never deductible. Not only will the IRS disallow them, but they can also create serious legal consequences.

9️⃣ Federal Income Taxes

You can deduct state and local taxes tied to your business, but not federal income taxes. Be sure to plan accordingly when estimating your quarterly and annual payments.

🔟 Personal Insurance Costs

Certain business-related insurance policies are deductible — such as liability, property, or errors-and-omissions coverage.

❌ Not deductible: Life insurance premiums (if your business or you are the beneficiary) and personal medical insurance not tied to your business plan.

✅ The Bottom Line

Every expense must pass the IRS test:

Is it ordinary (common in your trade)?
Is it necessary (helpful to your business)?

If not, it probably doesn’t qualify.

At Deductions & Co., we help clients separate personal from business expenses and ensure every deduction claimed is 100% legitimate. By staying compliant, you’ll avoid red flags and maximize your savings where it truly counts.

💬 Ready to Separate Fact from Fiction?

Don’t leave money on the table—or risk an IRS audit.
👉 Schedule Your Complimentary Consultation with Deductions & Co. today and get clarity on what really qualifies.