What Can You Deduct? Schedule C for a Trade Business

“Can I write that off?” gets asked about everything from a new miter saw to lunch at the supply house. The IRS answers with one test before it gets to any line on the form. Publication 334 says a business expense must be both ordinary and necessary: “An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business.” When something is partly business and partly personal, you split it, and “the personal part is generally not deductible.”

Here is Schedule C (Form 1040) the way a trade business meets it, from the IRS instructions for the 2025 return, with the 2026 figures the IRS has already published.

Job materials: Part III or line 22

For job materials, the instructions let a small business taxpayer, one with average annual gross receipts of $31 million or less for the 3 prior tax years that is not a tax shelter, choose not to keep an inventory. One permitted way treats it as materials and supplies, deducted “in the year in which they are first used or consumed in your operations.”

Line 22, supplies, runs on the same idea: “In most cases, you can deduct the cost of materials and supplies only to the extent you actually consumed and used them in your business during the tax year.” Say a tile setter buys 40 bags of thinset in December and uses 25 before New Year’s. The 15 still in the trailer belong to the year they go into a floor. Small incidental supplies you keep no record of using are the exception: those are deducted in the year you buy them, if that method clearly reflects income.

Line 9: the truck

You deduct either the actual cost of running the vehicle or the standard mileage rate times your business miles. The rate is 70 cents a mile for 2025. For 2026 the IRS set 72.5 cents in Notice 2026-10, then raised it to 76 cents for miles from July 1, 2026, a change it said “results from recent increases in the price of fuel” (Announcement 2026-11). With the standard rate you add business parking and tolls, and you do not also deduct gas, repairs, insurance or depreciation. With actual costs, the business share of gas, repairs, insurance and plates goes on line 9 and depreciation on line 13.

Driving between home and your regular place of work is personal commuting. Which trips count, the 6,000-pound line and writing a truck off in one year are in Writing Off the Truck.

Lines 11 and 26: the people you pay

Line 11, contract labor, is what you pay people you do not treat as employees, such as a sub who hangs drywall for you. The 2025 instructions require a Form 1099-NEC for contract labor of $600 or more in the year. For payments made after December 31, 2025, Rev. Proc. 2025-32 puts the base threshold at $2,000, a change made by the 2025 tax law. Whether a helper can be paid that way at all is a separate question, covered in 1099 or W-2?

Line 26 is wages for employees, and it never includes you. Pub 334: “You can’t deduct your own salary or any personal withdrawals you make from your business. As a sole proprietor, you are not an employee of the business.”

Tools and equipment: three ways to deduct them sooner

Property that lasts more than a year is generally depreciated over several years on line 13. Three rules let you deduct much of it in the year you buy it:

• Small items count as supplies. The IRS’s tangible property regulations treat property costing $200 or less, or with an economic useful life of 12 months or less, as materials and supplies.
• The de minimis safe harbor. A business without an applicable financial statement may deduct amounts up to $2,500 per invoice or item. You elect it each year by attaching a statement titled “Section 1.263(a)-1(f) de minimis safe harbor election” to a timely filed original return, and you must expense such amounts in your books under a consistent policy in place at the start of the year.
• Section 179 and bonus depreciation. For bigger equipment you can elect to deduct the cost in the year it goes into service. Pub 334 gives the 2025 section 179 limit as $2,500,000; Rev. Proc. 2025-32 sets $2,560,000 for 2026. Pub 463 explains that the 2025 law also made a 100% first-year bonus depreciation permanent for qualified property acquired after January 19, 2025.

Say a painter has a policy, in place from January 1, 2026, of expensing anything under $2,500, buys a $2,100 airless sprayer in April and a $160 extension ladder in May, and attaches the election to the 2026 return. Both are deducted for 2026: the ladder as a supply, the sprayer under the safe harbor. Without the election, the sprayer would be depreciated, or expensed under section 179 on Form 4562.

Lines 8 and 15 to 18: advertising, insurance, interest, the accountant

• Line 8, advertising. Pub 334 lists advertising among the expenses you can deduct. Gifts to people who send you work are capped: “You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year” (Pub 463). A $100 gift card to a property manager is a $25 deduction. Items costing $4 or less with your name permanently imprinted and handed out widely, such as pens, do not count as gifts.
• Line 15, insurance. Pub 334 lists liability insurance, workers’ compensation set by state law and insurance on business vehicles, among others. Only the business share of a vehicle’s policy counts, and none of it if you use the standard mileage rate. Not deductible: a self-insurance reserve, or a policy that pays your lost earnings due to sickness or disability. Your own health insurance goes on Schedule 1, line 17, not Schedule C. Pay three years of premiums at once and you still deduct one year at a time.
• Line 16, interest. Interest on business debt, including the business share of a truck loan. Pub 334’s example: a car used 60% for business and $600 of interest puts $360 on Schedule C.
• Line 17, legal and professional. Accountants and attorneys, including preparing the business part of your return.
• Line 18, office expense. Office supplies and postage.

Lines 20 to 25: rentals, repairs, licenses, meals, the phone

• Line 20a, rentals. The business part of renting vehicles, machinery or equipment.
• Line 21, repairs. Incidental repairs that do not add to the property’s value or appreciably prolong its life. “Do not deduct the value of your own labor,” and amounts spent to restore or replace property are capitalized.
• Line 23, taxes and licenses. License and regulatory fees paid each year to state or local governments, your matching Social Security and Medicare on employees’ wages, and federal unemployment tax. Not federal income tax, “including your self-employment tax”; half of that tax is deducted on Schedule 1, line 15. Sales tax on equipment you buy is part of the equipment’s cost.
• Line 24b, meals. In most cases 50%. The conditions: ordinary and necessary, not lavish, you or an employee present, and the meal provided to “a current or potential business customer, client, consultant, or similar business contact.” Meals while away overnight on business count too, at 50%. Entertainment does not: Pub 463’s example of two concert tickets for you and a client ends in a deduction of zero. A holiday party or summer picnic for your crew is exempt from the 50% limit.
• Line 25, utilities and the phone. If you use your home phone for business, “do not deduct the base rate (including taxes) of the first phone line into your residence”; extra business charges and a second line’s business share are deductible. A cell phone used both ways falls under the general rule: deduct the business part.

Line 30: the home office

Pub 334 sets the tests: the space is used exclusively, regularly and for your business. Exclusive means only for the business; its example is a den the family also uses, which fails. The space must also be your principal place of business, a place where you meet customers in the normal course of business, or a separate structure not attached to your home, such as a detached shop.

For a contractor who works on customers’ property, the test that fits is the administrative one: you use the office exclusively and regularly for administrative or management activities, and you have no other fixed location where you do substantial administrative or management work. Use Form 8829 for actual costs, or the simplified method: $5 a square foot for up to 300 square feet, a ceiling of $1,500. A qualifying home office also changes your mileage. Pub 463 says that with one, the trip from home to another work location in the same business is deductible transportation, not commuting.

What does not go on Schedule C

• Fines for breaking the law. Penalties paid to a government agency, a traffic ticket included. Penalties for late performance or nonperformance of a contract are different: Pub 334 lists those as deductible.
• Entertainment and club dues. Including business, social, athletic, sporting and luncheon clubs.
• Political contributions and lobbying. Charitable contributions are not business expenses either.
• Your income tax and self-employment tax. Only half the self-employment tax, on Schedule 1.
• Your own pay and your personal costs. Your draw, commuting, and the personal share of the truck and the phone.
• Your own health insurance and retirement contributions. They go on Schedule 1, lines 17 and 16.
• Improvements. Betterments, restorations and adapting property to a new use are capitalized, not deducted as repairs.

Keep the proof

Pub 463 is blunt: “You can’t deduct amounts that you approximate or estimate.” Keep the receipt, canceled check or bill, and for anything mixed, a record of the split. Generally you keep the records behind a deduction for 3 years from the date you file the return that claims it, and records of a vehicle’s business use for every year of its recovery period.

Every deduction lowers the net profit that flows to both Schedule 1 and Schedule SE, cutting income tax and self-employment tax together. Count them when you work out the payments due through the year; Quarterly Estimated Taxes has the dates.

General information, not legal or tax advice. Rules change and vary by state; check with the agency named above or a professional for your situation.