Non-deductible expenses for corporation tax are generally those not incurred "wholly and exclusively" for business, including client entertainment, fines/penalties, personal expenses, capital improvements, and political donations. Common examples include commuting costs, business gifts, unlawful payments, and depreciation, which must be added back to profit.
Examples of disallowable expenses for corporation tax
Loan repayments – the capital element of loan repayments are not allowable, only the interest element is allowable. Client entertainment – treating clients to meals, drinks, events etc.
Bribes, kickbacks, illegal payments
Expenditure incurred by a taxpayer that is illegal is deemed not to have been incurred for the purposes of the business or profession, and no deduction of such expenditure will be allowed.
Generally, expenses that may qualify for an itemized deduction include:
Common tax return mistakes that can cost taxpayers
Taking a small director's salary topped up with regular dividends from profits is the most tax-efficient way to pay yourself through a limited company. The most tax-efficient director's salary in 2025-26 is either £5,000, £6,500, or £12,570.
In California, you can elect to deduct up to $25,000* of the costs incurred during the year for the acquisition of personal property used in your business.
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).
Allowable expenses include your basic office costs such as stationery and the bills you pay on your business phone. Travel costs and staff salaries are also included, as is the cost of a uniform or other appropriate clothing (for example, if you work in a skilled or manual trade).
Expensing an item may bring in more money in the short term, but once you have expensed it, it does not qualify for write-offs on future tax returns. Depreciating an asset may result in less money upfront, but could result in fewer taxes owed in the future.
Limited company expenses will frequently include items such as office rent, employee salaries, utility bills, travel expenses, and professional fees.
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).
C Corporations must pay federal income taxes if they have taxable income after claiming all available credits and deductions. In some states, state-level income and excise taxes also apply. Additionally, C Corps may have to pay both federal and state employment taxes.
Sole Proprietor
Instead of taking a traditional paycheck, you'll pay yourself by withdrawing money from your business profits as needed. Here's what that process typically looks like: Withdraw funds from business profits using cash, check, or transfer from your business account.
A dividend trap is a stock that lures investors in with a big, fat payout that ends up being unsustainable. So, the dividend gets cut. And it's not just a loss of income when a company eliminates, reduces, suspends its dividend payment. It's usually also accompanied by a share price decline as well.
Many business expenses are 100% deductible, including advertising, employee wages, rent, supplies, and certain business meals like company parties or meals for the public, while personal deductions like student loan interest or charitable donations (depending on the type) can also be fully deductible for individuals. The key is that the expense must be "ordinary and necessary" for your trade or business or meet specific IRS criteria, often differentiating from the 50% rule for client meals.
S Corporations: The S Corp must either provide phones as a working condition fringe benefit or reimburse employees for business use under an accountable plan.
Only the business portion is deductible.
You need to determine what percentage of your cell phone usage is for business. For example: If 70% of your calls, apps, and data usage are business-related, you can claim 70% of your phone bill as part of your home office expenses.
If you take a tech deduction, the IRS may ask for documentation—receipts, canceled checks, invoices, or bank records—for the expenses.