Listed below are some commonly encountered items that usually won't be allowed as a business expense deduction. In most cases, a deduction is denied for these items either because they are nondeductible personal expenditures, or because Congress specifically made them nondeductible.
Where noted, some of these items may qualify for other tax benefits (such as tax credits or recovery through depreciation).
- bar or professional examination fees
- capital expenditures (not fully deductible in the year placed in service, but yearly deductions are allowed to recover the cost of the item over a specified time period)
- charitable contributions or gifts by a business that's not a C corporation (sole proprietors may deduct contributions on their individual tax returns, rather than on Schedule C).
- clothing, unless it's protective equipment, or a uniform that would not be worn during non-working hours
- country club, social club, or athletic club dues
- commuting expenses
- estate tax, even if largely due to the ownership of a business interest
- expenses, including interest, paid to generate tax-exempt income
- federal income tax
- fines and penalties incurred for violations of law, such as child labor violations, federal income tax penalties, traffic tickets, and penalties for overweight or over-length trucks.
- gift tax; inheritance tax
- gifts to employees that are valued at more than $25
- gifts to individuals (unless ordinary and necessary, business-related gifts)
- hobby losses (in excess of income from the hobby)
- inheritance tax
- interest on indebtedness incurred by a business taxpayer to purchase life insurance coverage in excess of $50,000 on the life of any its officers, employees, or other person having a financial interest in the taxpayer's trade or business
- interest on indebtedness incurred to purchase single premium life insurance contracts, or any life insurance contract under a plan of financing the purchase by withdrawing some or all of the yearly build-up in policy cash values
- job hunting expenses (for a new trade or business)
- life insurance premiums, if the business, or the business owner, is a direct or indirect beneficiary.
- lobbying expenses (appearances before legislative bodies and expenses to influence voters)
- partnership organizational expenses, unless amortization election made
- personal, living, or family expenses; however, certain interest, taxes, bad debts, medical expenses, theft or casualty losses, or charitable contributions may be deductible in whole or in part as an itemized deduction on your individual tax return
- political contributions, including tickets to political dinners
- tax penalty payments
- transfer taxes on business property
The fact that a particular item is not listed above does not necessarily mean that it will be deductible. Any expense will be nondeductible if it does not meet the general business expense deduction rules. Whether a particular expense meets the deductibility requirements will depend on the facts and circumstances of your business.