C corporation tax deductions business owners should know for 2026

Providing structured benefits can keep employees happy, increase retention, and boost a business’s tax efficiency by maximizing deductions and leveraging tax credits.

Typically, non-owner employee wages and benefits are considered ordinary business expenses and can be fully deducted by C corps.

These can include:

• Reasonable employee wages, salaries, bonuses, and commissions
• Payroll taxes, including the employer’s paid portion of Social Security, Medicare, and unemployment taxes

Fringe benefits, such as employee healthcare plans, offer a substantial tax advantage unique to C corps because they’re fully tax-deductible for the company and tax-free for the shareholder-employee. These benefits can be extremely beneficial for small, closely held C corps that want to maximize their tax savings and provide tax-free income to owner-employee entrepreneurs.

These benefits can include:

• Medical, dental, and vision insurance premiums
• Health Reimbursement Arrangements (HRAs)
• Disability insurance premiums
• Tuition reimbursement of up to $5,250 per year on work-related courses
• Childcare reimbursement of up to $5,000 per year
• Group-term life insurance, up to $50,000 in coverage
• Certain wellness and fitness benefits

C corps can make tax-deductible contributions to retirement plans for employees and employers, which directly lowers the company’s taxable income.

The main retirement options include:

• 401(k) plans: Ideal for companies with employees, allowing for high contribution limits and profit sharing.
• Solo 401(k)s: Great for owner-only C corps, these plans offer higher contribution limits and allow businesses to contribute as both the employer and the employee.
• Simplified employee pension (SEP) IRAs: Very easy to set up, and allow employers to contribute up to 25% of compensation.

Depreciable business assets are tangible or intangible property owned by the C corp to generate income and typically used for more than one year. These can include:

• Equipment and machinery, such as computers, printers, and specialized tools
• Cars, trucks, vans, and other vehicles used for business
• Desks, chairs, filing cabinets, and other office furnishings
• Office buildings, retail spaces, warehouses, and structural improvements
• Software and subscription services
• Patents and copyrights

A business can deduct the cost of an asset over its useful lifespan using IRS-approved depreciation methods, such as:

• Modified Accelerated Cost Recovery System (MACRS): Allows for larger deductions in early years.
• Straight-line: Spreads the cost evenly over an asset’s useful life.

If you'd like to deduct an item faster, the IRS offers a few special shortcuts for immediate expensing:

• De Minimis Safe Harbor, also called the $2,500 expense rule, allows C corps to immediately deduct qualifying tangible assets of $2,500 or less, such as laptops or tools. This rule boosts cash flow and simplifies bookkeeping by lowering taxable income for the year of purchase.
• Section 179 lets C corps deduct the full purchase price of an eligible asset for the year it’s placed in service, instead of depreciating over time. In 2026, the maximum deduction is about $2.56 million with a phase-out starting around $4.09 million in total equipment purchases, although these numbers are adjusted annually for inflation.
• Bonus depreciation: For qualifying assets purchased and placed in service after January 19, 2025, C corps can claim 100% bonus depreciation.

A C corp can’t directly deduct expenses if employees drive their own cars to visit clients or handle other business-related needs. Instead, the company can reimburse them for business use of the vehicle in one of two ways:

• Standard mileage rate: You can deduct a flat rate for every work-related mile driven, plus parking fees and tolls. For the 2026 tax year, the standard business mileage rate is 72.5 cents per mile.
• Actual expenses: You can deduct the actual costs to operate your vehicle for work, including gas, maintenance, repairs, tires, depreciation, registration fees and licenses, parking fees and tolls, and insurance.

If you claim a vehicle depreciation amount under actual expenses, you’ll also need to file Form 4562, Depreciation and Amortization.

Related travel expenses can be deducted.

Fully deductible business travel expenses include:

• Transportation, including airfare, train tickets, car rentals, taxis, and rideshare services
• Personal vehicle expenses, such as mileage, gas, parking fees, and tolls
• Lodging, including hotels, motels, and Airbnbs
• Baggage fees, internet access, tips for hotel staff, and other incidental costs
• Whether you eat at a restaurant or the airport, meals during a business trip are typically 50% deductible. However, the bill must be reasonable, not lavish or extravagant.

In 2026, the rules around charitable donation tax deductions changed. C corps can still use donations to nonprofit organizations to lower their corporate income tax liability, but they need to follow the new regulations.

The key 2026 business donation rules include:

• The C corporation’s charitable contributions must exceed 1% of the company’s taxable business income to be deductible, capped at 10%.
• Donations that exceed the 10% limit can be carried forward for up to five years. Charitable gift amounts disallowed by the new 1% floor may also be carried forward.

With the new 1% floor, C corps need to be more strategic about their giving. For example, they can bunch multiple years of donations into one year to surpass the floor and maximize C corp tax benefits.

C corps can claim certain loss-related deductions to reduce taxable income, including:

• Net operating losses (NOLs): If tax-deductible expenses exceed a company’s taxable income, NOLs can be carried forward indefinitely to offset future taxable income, although they’re limited to 80% of taxable income for any year they’re claimed.
• Capital losses: Capital losses are only deductible to the extent of capital gains and can be carried back three years and forward five years.
• Business interest: Interest accrued on business debt, such as loans for equipment or property, can be deducted. However, these write-offs are typically limited to 30% of a company’s adjusted taxable income (ATI), with exceptions for small businesses with average gross annual receipts of less than $30 million.
• State and local income taxes: C corps can deduct all state and local taxes (SALT), property taxes, sales taxes, regulatory fees, and licenses paid for compliance.

While C corps can benefit from many tax write-offs, there are limits. Here are some of the things you can’t deduct:

• Dividends paid to shareholders, since they're distributions of after-tax earnings, which leads to the double taxation of C corps.
• Federal income taxes paid, although state and local income taxes are usually deductible.
• Contributions to political parties, candidates, or lobbying organizations.
• Regulatory fines and civil penalties paid for violating laws and regulations.
• Client entertainment costs, such as sporting events, concerts, theater tickets, or other recreational activities.

When it comes to business structures, a C corp can pay off for companies that have:

• Qualified Small Business Stock (QSBS): Shareholders may exclude up to 100% of capital gains from the sale of stock held for more than five years, if the company meets specific criteria.
• Lower corporate tax rate: If the owner’s personal income tax rate is higher than the flat 21% federal corporate rate.
• Deductible employee benefits: When employee fringe benefits are offered to at least 70% of the company’s employees, C corps can fully deduct them, without taxing the shareholder-employee.
• Outside investors: There aren’t any restrictions on the number or type of shareholders for C corps, making them the preferred choice for venture capital funding.