Which Taxes are Tax Deductible?

Tax Deductions - Often times there is confussion on which taxes can and can not be used on your tax return. The following information will help you:


The following taxes can be deducted on Line 23 of Schedule C.

State and local sales taxes imposed on the employer as the seller of goods or services. If this tax is collected from the buyer, it must also include the amount collected in gross receipts or sales on line 1.

Real estate and personal property taxes on business assets.

Licenses and regulatory fees for the trade or business paid each year to state or local governments. Some licenses, such as liquor licenses, may have to be amortized. See chapter 8 of Pub. 535 for details.

Social security and Medicare taxes paid to match required withholding from the employees' wages. Reduce the deduction by the amount shown on Form 8846, line 4.

Federal unemployment tax paid.

Federal highway use tax.

Contributions to state unemployment insurance fund or disability benefit fund if they are considered taxes under state law.



The following taxes cannot be deducted.


Federal income taxes, including self-employment tax. However, the deduction for one-half the self-employment tax on Form 1040, line 27 is deductible.

Estate and gift taxes.

Taxes assessed to pay for improvements, such as paving and sewers.

Taxes on the home or personal use property.

State and local sales taxes on property purchased for business. Instead, treat these taxes as part of the cost of the property.

State and local sales taxes imposed on the buyer that the employer was required to collect and pay over to state or local governments. These taxes are not included in gross receipts or sales nor are they a deductible expense. However, if the state or local government allowed the employer to retain any part of the sales tax collected, the amount must be included as income.

Other taxes and license fees not related to the business