Corporation tax can be offset by deducting "wholly and exclusively" used business expenses from profits, including staff salaries, rent, utility bills, marketing costs, equipment, and travel. Other major deductions include capital allowances for assets, R&D tax credits, pension contributions, and carrying forward previous losses.
Capital allowances are a valuable form of tax relief that allow businesses to deduct the cost of qualifying capital expenditure from taxable profits, reducing corporation tax liabilities. This relief is particularly relevant for companies investing in assets such as plant and machinery or structures and buildings.
Rent for offices, storefronts, or warehouses is fully deductible. Business utilities like electricity, water, gas, heating, internet, and phone lines also qualify. Expenses must be for business use only. Commercial spaces allow 100% deduction of rent and utilities.
Corporations use offshoring profits, accelerated depreciation, and employee stock options to reduce taxable income. Tax credits and deductions help businesses lower their effective tax rate, sometimes below the statutory 21%.
The IRS allows taxpayers to deduct up to $3,000 of realized investment losses ($1,500 if married filing separately) against ordinary income each year. This deduction applies only to losses in taxable investment accounts and must be realized by December 31st to count for that tax year.
The section 179 deduction allows taxpayers, other than trusts and estates, to elect to expense a specified amount of the cost of qualifying property purchased for use in a business. For tax years beginning in 2026 the maximum deduction is $2,560,000, (2025, the maximum deduction is $2,500,000).
How can C corporations reduce their taxes?
The biggest tax mistakes people make include filing late, math errors, incorrect personal info (like Social Security numbers), forgetting deductions/credits (like EITC), misreporting income, not signing forms, and making errors with bank details for direct deposit, all leading to delays, penalties, or missed savings, with using tax software or professionals helping avoid these common pitfalls.
C-Corps are allowed to deduct qualified employee fringe benefits such as health and insurance benefits, education assistance, stock options or company discounts, transportation (e.g. company-owned car), moving and housing benefits, retirement plans, fitness club memberships, and meals during work hours.
Generally, expenses that may qualify for an itemized deduction include:
Some of the business expenses you can claim as a limited company or small business include:
34 Big Tax Deductions (Write-Offs) for Businesses in 2025
The "2% rule" for S Corporations treats shareholders owning more than 2% of the company's stock (or voting power) differently for fringe benefits, classifying them like partners in a partnership, not regular employees; this means benefits like health insurance premiums paid by the S Corp must be included as taxable wages on their W-2, rather than being tax-free, though the shareholder can often deduct these premiums as an "above-the-line" deduction. This rule prevents them from participating in tax-advantaged Section 125 cafeteria plans, making benefits like Health FSAs unavailable on a pre-tax basis.
S-Corp reasonable salary is the market-rate compensation you must pay yourself before taking distributions, typically ranging from $40,000-$150,000+, depending on your role, industry, and location. The IRS requires this to prevent payroll tax avoidance, with penalties reaching 20% plus interest for non-compliance.
Yes — according to Section 179 of the IRS tax code, small businesses can write off the full purchase price of new and used machines for the year they purchased them. This allows business owners to save a significant amount of money in taxes and reinvest that money back into their businesses instead.
If the vehicle weighs more than 6,000 pounds and is used more than 50% for business, you can write off up to $28,900 in the first year, and potentially even more with bonus depreciation. Let's break it down: Buy a qualifying vehicle for $60,000, and you could write off a large portion of that cost in year one.
Limited circumstances for stand-alone 179 benefits.
The Section 179 expense limit and phase-out threshold ($2,560,000 and $4,090,000, respectively, for 2026) are now permanent parts of the tax code that are adjusted annually for inflation.