Most ordinary business deductions work the same way on the Massachusetts return as on the federal one: Massachusetts follows the current Internal Revenue Code for trade or business expenses, travel, meals, the self-employed health insurance deduction and health savings accounts. For most other purposes, though, Massachusetts personal income tax follows the Code as it stood on January 1, 2024 — so several of the changes made by the federal tax law signed in July 2025 do not carry over.
This list covers what applies to most owner-led businesses. Whether a deduction applies to you depends on your facts; eligibility, not the size of the deduction, is the question to ask first.
How we chose
- Common. Deductions most small businesses and self-employed owners actually encounter.
- Where Massachusetts differs. Items where the state and federal returns part ways are flagged.
- Primary sources. Every figure is from the IRS or the Massachusetts Department of Revenue.
The ten
1.Ordinary and necessary business expenses
Best for: Every business
Rent, software, supplies, insurance, professional fees and the rest of the cost of running the business. Massachusetts follows current federal law on trade or business expenses, so these generally match on both returns — provided they are recorded and documented.
2.Vehicle expenses at the standard mileage rate
Best for: Owners who drive for the business
The 2026 federal business rate changed mid-year: 72.5 cents per mile for January 1 through June 30, and 76 cents per mile from July 1, 2026. Keep a mileage log with dates, destinations and business purpose — the rate is only as good as the record behind it.
3.Home office deduction
Best for: Owners who use part of their home regularly and exclusively for business
The simplified method allows $5 per square foot, up to 300 square feet. The regular method uses actual expenses and depreciation and needs more records. The space has to meet the regular-and-exclusive-use test either way.
4.Self-employed health insurance
Best for: Self-employed owners paying their own premiums
Figured on Form 7206 and claimed as an adjustment to income on the federal return. Massachusetts follows current federal law for this deduction.
5.Business meals
Best for: Owners who meet clients or travel
Generally 50% deductible when the meal has a business purpose and is documented. Massachusetts follows the federal meals rules.
6.Section 179 expensing — with a lower Massachusetts limit
Best for: Businesses buying equipment, vehicles or software
Federally, the 2026 Section 179 limit is $2,560,000, phasing out above $4,090,000 of purchases. Massachusetts does not adopt the new limits for 2025 and 2026: its limit is $1,250,000 with a $3,130,000 phase-out, and the federal amounts apply in Massachusetts only from 2027. Most small businesses stay well under both, but the difference shows up in the state depreciation schedule.
7.Bonus depreciation — federal only
Best for: Businesses with larger equipment purchases
The July 2025 law restored permanent 100% bonus depreciation for qualified property acquired after January 19, 2025. Massachusetts does not adopt it, so an asset fully expensed on the federal return is depreciated on the Massachusetts return instead. Expect a timing difference, not a lost deduction.
8.The qualified business income deduction — federal only
Best for: Sole proprietors, partners and S corporation owners
The Section 199A deduction of up to 20% of qualified business income was made permanent in 2025, with 2026 income thresholds of $201,750 ($403,500 for joint filers). Massachusetts does not allow it, so it reduces federal tax only.
9.Retirement plan contributions — federal only for most owners
Best for: Self-employed owners with a SEP, SIMPLE or solo 401(k)
Contributions to a SEP, SIMPLE or Keogh plan, and to an IRA, reduce federal taxable income but are not deductible for Massachusetts income tax. Plan for the federal benefit, and do not expect the same on the state return.
Read more →10.The Massachusetts pass-through entity excise
Best for: Partnerships and S corporations with owners who pay Massachusetts tax
An eligible partnership or S corporation can elect to pay a 5% excise on its Massachusetts income at the entity level; its members then receive a credit of 90% of their share. The election exists as a workaround to the federal cap on deducting state taxes, and it only applies while that cap is in effect. Whether it helps depends on the owners' situations — run the numbers first.
Where federal and Massachusetts differ in 2026
| Item | Federal | Massachusetts |
|---|---|---|
| Section 179 limit | $2,560,000 (phase-out $4,090,000) | $1,250,000 (phase-out $3,130,000) |
| 100% bonus depreciation | Yes, property acquired after Jan 19, 2025 | Not adopted |
| Qualified business income (199A) | Up to 20% | Not allowed |
| SEP / SIMPLE / IRA contributions | Deductible within limits | Not deductible |
| Domestic research costs (174A) | Deductible currently from 2025 | Deductible currently from 2026 |
| No tax on tips / overtime | New deductions | Not adopted |
| 1099-NEC threshold | $2,000 from 2026 | Follows federal |
Sources: Massachusetts DOR TIR 26-4 and 2025 Form 1 instructions; IRS Rev. Proc. 2025-32. Figures for tax year 2026 unless stated.
Two Massachusetts rates to know
Most Massachusetts income, including business income, is taxed at 5%. A 4% surtax applies to income above a threshold, which for 2026 is $1,107,750.
General information, not advice for your specific situation. Tax rules, prices and product features change, and firms change what they offer — check with the provider before relying on anything here, and talk to us or another qualified professional before acting on it.
