Is QuickBooks Tax Deductible for a Small Business?

For small business owners and freelancers, accounting software is a key tool for managing finances. A common question is whether the cost of software like QuickBooks can be deducted on a tax return. The answer is yes; expenses for the business use of QuickBooks are tax-deductible, which lowers a business’s taxable income and reduces its tax liability.

Qualifying QuickBooks as a Business Expense

To deduct the cost of QuickBooks, the expense must be both “ordinary and necessary” for your business. An ordinary expense is one that is common and accepted in your field. Given the widespread use of accounting software for financial tracking and invoicing, QuickBooks meets this standard for most businesses.

A necessary expense is one that is helpful and appropriate for your business, though it does not have to be indispensable. Accounting software like QuickBooks is considered necessary because it helps maintain accurate financial records. If the software is used for both business and personal finances, only the portion of the cost for business use is deductible. You must make a reasonable allocation; for example, if 80% of the software’s use is for your business, you can deduct 80% of its cost.

Deductible Costs Associated with QuickBooks

The costs related to QuickBooks that you can deduct extend beyond the initial purchase. It is important to identify all eligible expenses to accurately calculate your total deduction. These costs can be categorized into a few main areas.

Software Subscriptions

For businesses using online versions of the software, such as QuickBooks Online, the monthly or annual subscription fees are fully deductible. These payments are treated as regular operating expenses. You claim the deduction in the same tax year that the fees are paid.

Desktop Software Purchases

If you purchase a desktop version of QuickBooks, the tax treatment can differ. Under Section 179 of the tax code, businesses can deduct the full purchase price of qualifying off-the-shelf software in the year it is purchased. For 2025, the deduction limit is $1,250,000. This provision allows businesses to expense property immediately rather than capitalizing and depreciating it over several years.

Related Services and Add-ons

The QuickBooks ecosystem includes services and add-ons whose costs are also deductible. If you subscribe to QuickBooks Payroll to manage employee wages, those fees are a deductible business expense. Similarly, fees for using QuickBooks Payments to process customer payments can be deducted. Costs paid to an accountant for setting up, customizing, or training on the software are also deductible professional service fees.

How to Claim the Deduction on Your Tax Return

Once you determine the total deductible amount for your QuickBooks expenses, you must report it on the correct tax form. The specific form and line item depend on your business structure.

Sole proprietors and single-member LLCs who file business income on Schedule C (Form 1040) report the deduction in Part V under “Other Expenses.” You would write in a description like “Accounting Software” and include the cost on Line 27a.

For partnerships and S corporations, the deduction is claimed on their respective business tax returns. A partnership reports the expense on Form 1065, and an S corporation uses Form 1120-S. The cost is included under a line item for “Other deductions,” with a supporting statement.

Essential Recordkeeping for Substantiation

You are responsible for proving that your QuickBooks expenses are legitimate business deductions. In the event of an IRS audit, you must be able to provide evidence to support the amounts you claimed. Maintaining good records is a requirement for tax compliance.

To substantiate your deduction, keep copies of all relevant documents. This includes invoices for your QuickBooks subscription or purchase, receipts, and bank or credit card statements that show the payments.

The IRS recommends keeping records for three years from the date you filed your return. Records should be kept for six years if you have underreported your income by more than 25%. Employment tax records must be kept for at least four years after the tax is due or paid.