How to Deduct Software Subscriptions: A Simple Tax Saving Tip for Small Business Owners!

Joe Mardesich
May 1
2 min read

1. Software Subscriptions Are Fully Tax Deductible

If you're using tools like QuickBooks, Adobe Creative Cloud, Canva, or Slack for your business, you're in luck these software subscription costs are 100% deductible. The IRS allows you to write off any software that is "ordinary and necessary" for your business operations. Whether you pay monthly or annually, those expenses can reduce your taxable income.

2. Every Subscription Can Save You Real Money

Let’s say you pay $30/month for a design tool and $50/month for accounting software. That’s nearly $1,000 a year. If you’re in the 25% tax bracket, that’s a $250 tax saving just from those two tools. When you total up all your business-related software, the savings can be substantial.

3. What Qualifies as a Deductible Software Expense

To be deductible, the software must be used primarily for business purposes. Tools used for project management, customer relationship management, design, accounting, or communication typically qualify. However, personal software or apps that are not used for business cannot be deducted.

4. Mixed Use Subscriptions? Deduct the Business Portion

If you use a subscription both personally and professionally like a shared Zoom account you can only deduct the percentage used for business. For example, if 70% of your use is business related, you can deduct 70% of the cost. Keep a usage log if possible.

5. Track Your Subscriptions in Your Bookkeeping System

Make sure you create a specific category like Software Subscriptions in your accounting software. This makes it easier to track, organize, and calculate total expenses at tax time. Automate this process by linking your business credit card or bank account.

6. Save Receipts and Invoices

Always keep digital receipts or emails that confirm your payment. These are important if you're ever audited or need to double check your expenses. Tools like Expensify or Dext can make this even easier by capturing and storing receipts automatically.

7. Review Your Software Expenses Annually

At least once a year, review all your software subscriptions. Cancel anything you're not using and ensure you're not paying for duplicate services. This keeps your bookkeeping clean and your spending efficient.

8. Avoid Deducting Non Business Software

Subscriptions like Netflix, video games, or personal cloud storage (unless directly tied to your business) should not be deducted. Claiming non business expenses could lead to issues with the IRS and potential penalties.