Deductions · Taxes

Taxes and Licenses: Schedule C Line 23 Deductions

Updated October 28, 2026 · Sources: IRS.gov · Planning information, not tax advice

In short: Business taxes and license fees, including the employer share of payroll taxes and local business taxes, are fully deductible on Schedule C Line 23.

As a self-employed professional or 1099 contractor, tracking every legitimate business write-off is crucial for lowering your taxable income. Among these operational costs are various government fees, local taxes, and payroll contributions required to run your enterprise. According to IRS Pub 535, you can deduct these expenses directly on Schedule C Line 23. Understanding which items qualify and which are excluded ensures your filings remain accurate and compliant for tax year 2026.

What Qualifying Taxes and Licenses Can You Deduct?

When filing your taxes, you are allowed to write off the cost of standard business licenses, regulatory fees, and specific local government assessments required to operate your trade. If you have employees, the employer's share of payroll taxes also qualifies for this deduction. Additionally, certain state and local taxes tied directly to your business operations can be claimed here. These expenses reflect the mandatory costs of doing business legally within your municipality and state jurisdictions.

Taxes That Do Not Qualify for This Deduction

It is critical to separate business operational levies from personal tax obligations, as federal income taxes and self-employment taxes cannot be deducted on Line 23. Furthermore, sales tax collected directly from your customers is never considered your personal deduction, since it simply passes through your business to the state. Attempting to write off your personal income tax liability or customer sales tax collections will trigger discrepancies. Always review IRS Pub 535 guidelines to ensure every recorded amount belongs strictly to business operations.

How to Track and Report Business Taxes

Accurate record-keeping is essential for substantiating every dollar claimed on Schedule C Line 23. Keep copies of all business license renewals, municipal fee receipts, and payroll tax filings in a centralized folder. Using tools like the Proofly receipt scanner can help you capture and organize these expense records digitally throughout the year. Maintaining a clear paper trail protects your business and simplifies the reporting process when tax season arrives.

What the Proofly receipt scanner does — and doesn’t

Does

Reads merchant, date, line items, tax and payment method from a photo, with a confidence meter so you can correct it before saving
Keeps personal and per-company receipts separate
Maps business expenses to Schedule C lines (meals already at 50%)
Exports an audit pack: every receipt image plus a ledger, as PDF, and CSV for QuickBooks or Xero
Has a manual mileage log priced at the IRS rate for each trip’s date

Doesn’t

File your taxes or give tax advice
Sync live with QuickBooks or Xero (it’s CSV export)
Pull transactions from your bank automatically
Track your drives by GPS
Guarantee how an audit turns out

Frequently asked questions

Can I deduct my personal federal income taxes on Schedule C?

No. Federal income tax and self-employment tax are personal tax liabilities and cannot be deducted as business expenses on Line 23.

Are business license renewal fees deductible?

Yes. State and local business licenses required to legally operate your enterprise are fully deductible under taxes and licenses.

What about sales tax collected from my customers?

Sales tax collected from clients is not your deduction. You act merely as a collection agent for the state, so it never counts as a business expense.

Which IRS publication covers these business deductions?

IRS Publication 535 provides detailed guidance on business expenses, including the rules surrounding deductible taxes and license fees.

Sources

This guide summarizes IRS guidance as of October 28, 2026 for planning purposes. It isn’t tax advice — confirm your situation with IRS.gov or a qualified tax professional.