What Counts as a Business Expense in New York? A Simple Guide for Small Business Owners

Running a business in New York can feel expensive. Rent is high, taxes are confusing, and every dollar matters. That is why many business owners end up asking the same question.

What counts as a business expense in New York?

In simple terms, a business expense in New York is generally deductible if it is ordinary and necessary for running your business. Most allowable expenses follow federal IRS rules, with additional New York State and local requirements for documentation and compliance.

Understanding that definition is only the starting point. Knowing which expenses qualify, which do not, and how to track them correctly can make a real difference when tax time comes around.

In this guide, we will explain everything, and by the end of this article, you will understand:

• What makes an expense deductible in New York

• Which business expenses are commonly allowed

• Which expenses are not deductible

• How New York rules compare to IRS rules

• What records do you need to keep to stay compliant

How Business Expense Deductions Work in New York

What “Ordinary and Necessary” Means

This rule comes from the IRS, and New York mostly follows it.

• Ordinary means the expense is common in your type of business

• Necessary means the expense helps you run your business

For example:

• A laptop for a freelance designer is ordinary and necessary

• A work truck for a contractor is ordinary and necessary

• A luxury vacation labeled as “research” is not

If an expense helps you earn income and makes sense for your business, it is usually allowed.

IRS vs New York Business Deductions

New York generally follows federal rules for business expenses. That means most deductions you take on your federal return also apply to your New York return.

However, there are important differences:

• New York may require more detailed records

• Sales tax rules are handled at the state level

• NYC businesses may face additional local taxes

The key takeaway is simple. Federal rules are the base. New York adds extra layers.

Common Deductible Business Expenses in New York

Below are the most common business expenses that are deductible in New York when they are business-related and properly documented.

Office and Operating Expenses

These are basic costs needed to keep your business running.

Examples include:

• Office rent or coworking space fees

• Electricity, water, and heating

• Internet and business phone service

• Office furniture and equipment

• Paper, ink, and small office supplies

If you use something for both business and personal reasons, only the business portion is deductible.

Marketing and Advertising Expenses

Money spent to promote your business is usually deductible.

This includes:

• Website design and hosting

• Online ads and social media ads

• Email marketing tools

• Business cards and flyers

• Branding and logo design

If the goal is to attract or keep customers, it usually qualifies.

Professional Services

Fees paid to professionals for business help are deductible.

Common examples:

• Accounting and bookkeeping services

• Legal advice

• Business consultants

• IT and tech support

These expenses are often overlooked, but they add up quickly.

For a detailed breakdown of how professional services and contractor payments work as deductions, including reporting requirements and common compliance mistakes, see our guide on how professional services and contractor payments work as deductions.

Payroll and People Costs

If you have employees, many people-related costs are deductible.

These include:

• Employee wages and salaries

• Bonuses and commissions

• Employer-paid health benefits

• Employer portion of payroll taxes

• Required New York insurance, like workers’ compensation

Payments to independent contractors are also deductible when properly reported.

Travel, Meals, and Vehicle Expenses

These expenses are deductible when they are for business purposes.

Travel expenses may include:

• Airfare

• Hotels

• Taxis or rideshares

Meals are usually:

• 50% deductible

• Allowed when business is discussed

• Not allowed if they are lavish or personal

Vehicle expenses can be deducted in two ways:

• Standard mileage rate

• Actual expenses like gas and repairs

You must keep mileage logs or records.

Home Office Deduction in New York

If you work from home, you may qualify for a home office deduction.

To qualify:

• The space must be used regularly

• The space must be used only for business

You can deduct part of:

• Rent or mortgage interest

• Utilities

• Home insurance

New York follows federal rules for this deduction.

The home office deduction follows strict rules around exclusive use, square footage, and calculation methods, which we explain step by step in our guide on how the home office deduction works in New York.

Education, Software, and Subscriptions

Costs that help you do your job better are often deductible.

Examples include:

• Job-related courses

• Training programs

• Business software subscriptions

• Industry tools and platforms

The education must help your current business, not prepare you for a new one.

Expenses That Are Only Partially Deductible

Some expenses are allowed, but only part of the cost can be deducted.

Common Partial Deductions

• Business meals are usually 50% deductible

• Vehicles used for business and personal use

• Home expenses when only part of the home is used for work

You must calculate and document the business portion carefully.

Business Expenses That Are Not Deductible in New York

Some expenses are never deductible, even if they feel business-related.

These include:

• Personal living expenses

• Daily commuting from home to work

• Fines and penalties

• Political donations and lobbying

• Entertainment like sports tickets or golf outings

Trying to deduct these can raise red flags.

New York–Specific Considerations Business Owners Miss

This is where many businesses make mistakes.

Sales Tax and Resale Exemptions

If you buy items to resell, you may not need to pay sales tax. But you must use proper resale certificates.

Improper handling of sales tax is a common New York audit issue.

If you want to see exactly when and how to use a resale certificate and avoid common sales tax mistakes, read our guide on How NY Handles Sales Tax on Business Purchases and Resale Exemptions for you to understand it better.

Recordkeeping Expectations in New York

New York expects strong documentation.

You should keep:

• Receipts

• Invoices

• Bank statements

• Mileage logs

Records should be kept for at least three years.

NYC Business Taxes

Businesses operating in New York City may face extra taxes, such as the Unincorporated Business Tax.

These do not change what counts as an expense, but they do affect how deductions impact your total tax bill.

Startup Cost Deductions

If you are starting a business, some startup costs can be deducted in the first year.

These may include:

• Market research

• Legal setup fees

• Initial marketing

Limits apply, and excess costs may be spread over time.

For a more detailed look at real-world startup costs and first-year business expenses in New York—including LLC filing fees, publication costs, rent, and payroll, check out our comprehensive guide on startup costs and first-year business expenses in New York.

Recordkeeping Requirements for NY Business Expense Deductions

Good records protect you.

At a minimum, keep:

• Date of purchase

• Amount

• Who you paid

• What the expense was for

• Proof of payment

For travel and meals, include:

• Who did you meet with

• What was discussed

Digital records are allowed and encouraged.

If you want a step-by-step breakdown of how to organize receipts, track expenses, use accounting software, and stay compliant with NY rules, see our guide on best practices for tracking business expenses in NY.

Business Expense Examples by Business Type

Small Business Expenses in New York

Retailers may deduct:

• Inventory costs

• POS software

• Store rent

LLC Business Expenses in New York

LLCs may deduct:

• Operating expenses

• Professional fees

• Owner-paid business costs

Sole Proprietor and Self-Employed Expenses

Common deductions include:

• Home office

• Phone and internet

• Equipment

Freelancer Business Expenses in New York

Freelancers often deduct:

• Software tools

• Education

• Marketing

• Coworking spaces

Final Thoughts

This guide is meant to help you understand the basics. Every business is different, and New York tax rules can get complex fast.

If you are unsure whether an expense is deductible or if you want to maximize deductions while staying compliant, it is smart to consult a qualified tax professional.

Understanding what counts as a business expense in New York is one of the easiest ways to keep more of what you earn.

Knowing what counts as a business expense in New York is just the first step. Small businesses can also benefit from New York State tax credits and incentives that reward hiring, investment, and growth, helping you save even more on taxes.

Frequently Asked Questions

What business expenses are deductible in New York?

Expenses that are ordinary and necessary for your business, such as rent, payroll, supplies, and marketing, are generally deductible in New York.

Are business expenses tax-deductible in NY?

Yes. Most business expenses that are deductible on your federal return are also deductible on your New York return, with proper documentation.

What expenses can a small business deduct in New York?

Small businesses can deduct operating costs like rent, utilities, employee wages, software, advertising, and professional services.

What expenses can LLCs deduct in New York?

LLCs can deduct business-related expenses such as operating costs, professional fees, payroll, and business equipment.

What business expenses are not deductible in NY?

Personal expenses, commuting costs, fines, entertainment, and political contributions are not deductible in New York.