S Corp Tax Deductions List (2025-2026): The Ultimate Guide

Electing S corporation status can unlock significant tax savings for your small business operations. But those tax benefits only materialize if you understand which deductions apply and how to claim them correctly. Too often, S corp owners miss out on valuable deductions or risk IRS scrutiny by misclassifying expenses. 

This guide covers key S corp tax deductions you should know, from compensation to home office reimbursements. You’ll also learn how to apply these business deductions strategically to improve cash flow, reduce audit risk, and reinvest confidently in your business.

Key Highlights

• S corp owners must balance reasonable salary vs. distributions to stay compliant and reduce payroll taxes.

• Deductible expenses include compensation, home office costs, operating expenses, vehicles, and equipment purchases.

• The Qualified Business Income (QBI) deduction allows eligible owners to deduct up to 20% of taxable income.

• Proper documentation is critical: accountable plans, mileage logs, and payroll records can protect deductions from IRS challenges.

• Working with a tax advisor ensures business deductions are maximized without triggering costly mistakes.

The Foundation: Salary vs. Distributions

One of the most unique aspects of S corps is how owners are compensated. You’re both an employee and a shareholder, and that distinction drives how your income is taxed.

• Reasonable compensation: The IRS requires S corp owners to pay themselves a reasonable salary, reported on a W-2, Wage and Tax Statement, that reflects the fair market value of the work they perform. This salary is subject to payroll taxes and is one of your most important tax obligations.

• Distributions: After paying yourself a reasonable salary, you can take the remaining profits as distributions, which are generally not subject to self-employment tax. This makes them highly tax-efficient.

For a more detailed breakdown, see our guide on S corporation distributions.

Failing to pay a reasonable salary before taking distributions is one of the fastest ways to invite an IRS audit.

The Complete List of S Corp Tax Deductions

Read this comprehensive breakdown of the deductions your S corporation may be able to claim.

Owner and Employee Compensation

View top deductions related to owner and employee compensation. 

• Owner salary (W-2 wages): Deductible as a business expense.

• Employee wages and bonuses: Fully deductible.

• Health insurance premiums: For shareholders owning more than 2%, premiums can be deducted if appropriately reported on the W-2.

• Retirement contributions: S corps can deduct contributions to qualified plans such as 401(k)s and SEP IRAs.

For IRS guidance on compensation and benefits, review the IRS’s S corporation rules.

Home Office Expenses: The Accountable Plan Rule

Unlike sole proprietors, S corp owners can’t directly deduct home office expenses on their personal tax return. Instead, they must use an accountable plan to reimburse these costs.

Steps to set up an accountable plan include:

1. Calculate the percentage of your home used for business.

2. Track actual costs (utilities, mortgage interest, insurance, etc.).

3. Submit an expense report to the S corp.

4. Reimburse yourself from business funds.

When done correctly, these reimbursements are deductible to the business and tax-free to you.

Day-to-Day Operating Expenses

Ordinary and necessary business expenses are deductible if they are directly related to operating your S corporation. Common examples include:

• Office supplies and software (e.g., Microsoft 365, Adobe Creative Cloud).

• Marketing expenses and advertising (website hosting, digital ads, business cards).

• Professional fees (legal, virtual accounting, consulting).

• Business insurance (liability, professional, property).

• Education expenses and training related to your business.

• Business travel (airfare, lodging, rental cars).

• Business meals (generally 50% deductible).

Missed deductions in these categories are common. Our guide on overlooked tax write-offs can help ensure you capture every eligible dollar.

Vehicle and Mileage Deductions

S corps can deduct business vehicle use under two methods:

• Standard mileage rate (set annually by the IRS).

• Actual expenses (fuel, insurance, maintenance, depreciation).

The standard mileage rate is simpler and recommended for high-mileage drivers, while the actual expense method is better if your vehicle costs are higher than average.

Regardless of the method, you must maintain a contemporaneous mileage log that shows the dates, miles, and business purpose. Without documentation, the IRS will likely disallow the deduction. 

Asset Purchases: Depreciation and Section 179

Investing in equipment, computers, or furniture? These purchases can often be written off.

• Depreciation: Deduct the cost over several years.

• Section 179 deduction: Deduct the entire cost in the year of purchase, up to IRS limits.

Recent law changes under the One Big Beautiful Bill Act made 100% bonus depreciation and higher Section 179 limits permanent. This creates powerful tax planning opportunities for growing businesses.

The Pass-Through Deduction (QBI)

The QBI deduction allows eligible S corp owners to deduct up to 20% of qualified business taxable income on their personal tax return.

Key points:

• It applies to pass-through entities, such as S corporations, partnerships, and sole proprietorships that avoid double taxation.

• W-2 wages paid by the S corp can impact eligibility and deduction limits.

Maximize Your Savings with Expert Guidance

S corp tax deductions are powerful, but deduction mistakes on a business tax return can be costly. Common pitfalls include misclassifying distributions, failing to establish accountable plans, or deducting personal expenses as business expenses. This guide will help you avoid these pitfalls, and working with tax professionals ensures that you do. 

At 1-800Accountant, America's leading virtual accounting firm, our affordable, tax-deductible tax advisory services help many small business owners:

• Structure payroll correctly.

• Implement accountable plans for home office and reimbursements.

• Plan asset purchases and retirement contributions strategically.

• Navigate complex rules, such as QBI and health insurance reporting.

Schedule a free consultation today, typically lasting 30 minutes or less, and discover how our experts can help you minimize your tax bill while staying compliant.

Frequently Asked Questions (FAQ)

Can my S corp deduct startup costs, and how are they treated differently from ongoing expenses?

Yes, your S corp can deduct startup costs. Up to $5,000 in startup costs and $5,000 in organizational costs may be deducted in the first year, with the remainder amortized over a 15-year period.

Are meals and entertainment fully deductible for an S corp, or are there limits?

Meals are generally 50% deductible. Entertainment expenses, such as tickets to sporting events, are not deductible.

How do S corp deductions work if my business operates in multiple states?

Each state may have its own rules. Federal deductions are applied consistently to federal income taxes, but state tax treatment can vary. A tax advisor can ensure compliance with the laws of each jurisdiction.

Can I deduct health insurance premiums for family members who work in the business?

Yes, you can deduct health insurance premiums if your relatives are bona fide employees and the premiums are reported correctly on their W-2s.

What happens if I accidentally deduct personal expenses through my S corp?

Personal expenses are not deductible. If discovered in an audit, the IRS may disallow them and assess back taxes and penalties.

Can charitable contributions be deducted by the S corp, or do they flow through to shareholders?

No. Contributions flow through to S corporation shareholders, who can deduct them on their personal returns if they itemize.

Are education or professional development costs for owners deductible?

Yes, professional and educational costs are usually deductible. Courses, certifications, and seminars that improve your business skills are examples of these deductible expenses.

How do I document vehicle expenses to make sure they hold up in an IRS audit?

Keep a mileage log that includes dates, miles, and the purpose of each business trip in case of an audit. Supporting receipts (fuel and repairs) are essential for the actual expense method.

Can my S corp deduct reimbursements I make to myself without an accountable plan?

You can do this, but reimbursements not made under an accountable plan are treated as taxable wages.

Are there deductions unique to S corps that other entity types can’t claim?

Yes, there are deductions unique to S corps and some that are barred from being claimed. Health insurance premium deductions for 2% shareholders and the need to manage salary vs. distribution split are unique to S corps.

Final Thoughts

For many business owners, the right tax strategy can significantly enhance their S corporation’s profitability and overall financial health. By understanding these deductions—and applying them with the right systems—you can save thousands, free up cash flow, and reinvest in your existing business .

Ready to maximize your S corp deductions? Schedule a call with 1-800Accountant and let our experts guide you through every step.