On Schedule C (Form 1040), Line 23, you may deduct certain taxes and licenses directly related to your business operations. These include state and local sales taxes imposed on you as the seller of goods or services (if collected from buyers, this amount must also be included in gross receipts on Line 1), real estate and personal property taxes on business assets, licenses and regulatory fees paid to state or local governments for your trade or business, social security and Medicare taxes paid to match employee withholding (reduced by the amount on Form 8846, line 4), federal unemployment tax, federal highway use tax, and contributions to state unemployment insurance or paid family and medical leave programs if considered taxes under state law.
What You Cannot Deduct
- Federal income taxes, including self-employment tax (though one-half of self-employment tax is deductible on Schedule 1, Form 1040, line 15).
- Estate and gift taxes.
- Taxes for improvements such as paving or sewers.
- Taxes on your home or personal use property.
- State and local sales taxes on property purchased for business use — these must be capitalized as part of the property’s cost.
- Sales taxes collected from buyers and remitted to state or local governments — these are not deductible and not included in gross receipts.
- Any other taxes or license fees not directly related to your business.
Special Considerations
- Licenses such as liquor licenses may need to be amortized — refer to the Instructions for Form 4562 for details.
- If you collected sales tax from buyers and were allowed to retain any portion, that amount must be reported as income on Line 6.
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.