On Schedule C (Form 1040), Line 23, you may deduct certain taxes and license fees that are directly related to operating your trade or business. These generally include state and local taxes imposed on the business, employer payroll taxes, business-related property taxes, and required business licenses and regulatory fees.
Deductible Taxes and Licenses
- State and local sales taxes imposed on you as the seller of goods or services. If you include the sales taxes collected from customers in gross receipts, you may deduct the amount paid to the taxing authority on Line 23.
- Real estate taxes on business property.
- Personal property taxes on business assets, such as equipment or vehicles, if the tax is based on the property's value and is imposed annually.
- Business licenses and regulatory fees paid annually to state or local governments for your trade or business.
- Employer's share of Social Security and Medicare taxes paid on employee wages, reduced by any credit claimed on Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips.
- Federal unemployment (FUTA) tax.
- Federal highway use tax on business vehicles.
- State unemployment taxes and certain state paid family and medical leave taxes that are treated as taxes under state law.
What You Cannot Deduct
- Federal income taxes.
- The employer-equivalent portion of self-employment tax on Schedule C. Instead, the deductible portion of self-employment tax is claimed on Schedule 1 (Form 1040), Line 15.
- Estate and gift taxes.
- Taxes assessed against local benefits that increase the value of property, such as assessments for streets, sidewalks, water mains, sewer lines, or similar improvements. These amounts are generally added to the property's basis.
- Taxes related to your home or other personal-use property.
- State and local sales taxes paid when acquiring business assets that must be capitalized and added to the basis of the property rather than deducted currently.
Special Considerations
- If you collect sales tax from customers and exclude those amounts from gross receipts, you cannot deduct the sales tax payments because they were not included in income.
- If you collect sales tax from customers and include those amounts in gross receipts, you may deduct the amount paid to the taxing authority on Line 23.
- If you are permitted to retain any portion of sales taxes collected from customers, the retained amount must generally be included in income.
- Certain licenses, permits, franchises, or similar rights that provide benefits extending substantially beyond the current tax year may need to be capitalized or amortized rather than deducted currently. See the Instructions for Form 4562 for additional guidance.
Source:
Schedule C Instructions (2025)
Disclaimer: Always verify details with the current year’s official IRS forms and instructions, as well as your state’s Department of Revenue. Tax rules may vary based on individual circumstances, and professional advice from a CPA or tax attorney is recommended for complex situations.