What can New Hampshire businesses deduct? Almost every ordinary and necessary expense the IRS allows (rent, wages, insurance, software, professional fees, depreciation) also lowers the New Hampshire Business Profits Tax, because the BPT starts from federal taxable income. The exceptions are where owners lose money: New Hampshire disallows bonus depreciation, caps Section 179 at $500,000, limits net operating losses, and runs a second levy, the Business Enterprise Tax, that treats payroll as part of its base instead of a write-off.
The state has no general sales tax or broad personal income tax on wages, and the interest and dividends tax is repealed for periods starting in 2025. New Hampshire imposes two levies instead: the BPT, with a tax rate of 7.5% of taxable business profits (RSA 77-A:2), and the BET at 0.55% of the enterprise value tax base (RSA 77-E:2).
Federal vs. New Hampshire: Where Each Deduction Lands
Most small business owners in New Hampshire produce three sets of numbers each year: the federal tax return, the BPT, and the BET. Here is how common write-offs behave on each for 2026.
| Expense | Federal income tax | NH BPT | NH BET |
|---|---|---|---|
| Rent, utilities, insurance, supplies | Deductible | Deductible (flows from federal) | Not in the base |
| Employee wages and benefits | Deductible | Deductible | Added to the base |
| Owner pay (proprietor, partner, LLC member) | Draws are not deductible | Reasonable compensation deduction | Added to the base |
| Interest paid | Deductible, Section 163(j) limit for larger firms | Deductible, including amounts 163(j) disallows | Added to the base |
| Dividends paid | Not deductible | Not deductible | Added to the base |
| Equipment under Section 179 | Up to $2,560,000 for 2026 | Capped at $500,000 | No effect |
| Bonus depreciation | 100% for property acquired after January 19, 2025 | Not allowed | No effect |
| Net operating loss | Indefinite carryforward, 80% of income limit | 10 years, $10 million per loss year | No effect |
| BPT and BET paid | Deductible | BET paid is a credit against BPT | Not applicable |
Read the BET column twice: wages and interest you write off federally land in its base, and a payroll-heavy firm with thin margins can pay BET it can’t use right away.
What Can New Hampshire Businesses Deduct on the Federal Return?
Federal law allows a tax deduction for any cost that is ordinary (common in your trade) and necessary (helpful and appropriate) under Internal Revenue Code Section 162. Since the BPT begins there, this list (2026 figures from Internal Revenue Service guidance) covers both returns:
- Rent, utilities, phone, internet, liability and property insurance, and workers’ compensation premiums.
- Wages, bonuses, health premiums, employer retirement plan contributions (401(k), SEP, SIMPLE), and the employer half of Social Security and Medicare under the Federal Insurance Contributions Act (FICA).
- Vehicle costs at the IRS standard mileage rate (72.5 cents per mile through June 30, 2026, then 76 cents) or actual expenses. To use the standard rate on a car you own, you must choose it in the car’s first year in service.
- Business meals at 50%. Entertainment is not deductible at all.
- A home office used regularly and exclusively for work, at $5 per square foot up to 300 square feet or at actual cost.
- Small purchases under the de minimis safe harbor: up to $2,500 per invoice or item if you attach the election to a timely return.
- Advertising, software, fees paid to attorneys or a Certified Public Accountant, and training that maintains skills in your current trade.
Pass-through owners also get the qualified business income (QBI) deduction of up to 20%, made permanent in 2025 by the One Big Beautiful Bill Act. It’s claimed on the owner’s Form 1040, so it never reaches the BPT.
Where the Business Profits Tax Departs From Federal Rules
The BPT uses a fixed-date version of the Internal Revenue Code defined in RSA 77-A, plus state adjustments, so changes Congress made in 2025 don’t flow through on their own. Organizations operating a unitary business must use combined reporting, which applies these adjustments across the whole group.
Bonus Depreciation and the $500,000 Section 179 Cap
RSA 77-A:3-b applies the code without Section 168(k), so New Hampshire allows no bonus depreciation; you add it back and use regular MACRS (the Modified Accelerated Cost Recovery System) on state tax returns instead. Section 179 is allowed, but RSA 77-A:3-a caps it at $500,000. When we checked the statute on the General Court’s site in October 2026, that cap was unchanged, though the federal limit is now more than five times the state cap.
The add-back we flag most often is a truck or machine written off in full federally. The first-year BPT bill runs higher than the owner expects, and a separate state depreciation schedule has to follow that asset until it’s sold.
What Can New Hampshire Businesses Deduct for Owner Pay?
Proprietorships, partnerships, and LLCs filing as either may deduct fair and reasonable compensation for the owners’ personal services under RSA 77-A:4, III. The deduction can’t push taxable profits below zero or exceed the earned income the owner reports federally. Owners who skip substantiation can elect a record-keeping safe harbor of up to $75,000 in total. Corporations, S corporations included, handle owner pay as ordinary W-2 wages instead.
Net Operating Losses and Business Interest
A New Hampshire net operating loss carries forward only 10 years, capped at $10 million of carryover per loss year (RSA 77-A:4, XIII). Federal losses carry forward indefinitely but offset only 80% of taxable income.
Interest goes the other direction. For years starting in 2024 or later, interest the federal Section 163(j) limit disallows is deducted in full for the BPT (RSA 77-A:4, XX), then added back when the federal carryforward is used. Firms under the $32 million gross receipts test for 2026 are exempt from 163(j) anyway.
Why the BET Taxes Payroll Instead of Deducting It
The New Hampshire Business Enterprise Tax has no deduction concept. Its enterprise value tax base is the sum of compensation paid or accrued, interest paid or accrued, and dividends paid by the business enterprise (RSA 77-E:1, IX), apportioned to activity within the state and taxed at 0.55%. Owner compensation deducted for the BPT, and net earnings subject to self-employment tax, are pulled into this base, so a bigger owner deduction lowers one levy and raises the other.
The offset is a credit. BET paid is credited against the BPT under RSA 77-A:5, X, and unused credit carries forward 10 taxable periods. Take a Nashua contractor with $600,000 of wages and $40,000 of taxable business profits, ignoring apportionment: about $3,300 of BET and $3,000 of BPT before credits. The credit erases the BPT and leaves roughly $300 to carry forward, which a small business accounting firm should track so it doesn’t expire unused.
State Credits That Are Worth More Than a Deduction
On the state business tax side, a deduction saves BPT at 7.5 cents per dollar, while a credit can reduce tax liability dollar for dollar. The Community Development Finance Authority (CDFA) investment credit equals 75% of a contribution to the authority, usable against the BPT, the BET, or both, with five years of carryforward (RSA 162-L:10). IRS rules can reduce a charitable deduction when a state credit comes back to you, so plan the federal side separately.
Records That Hold Up With the IRS and the DRA
The New Hampshire Department of Revenue Administration (DRA), the state agency that administers the BPT and BET, audits from the same documents the IRS uses for federal tax obligations, plus the state-only schedules. Each business must be able to produce:
- A dedicated bank account and card.
- Mileage logs kept as you drive, with date, destination, and business purpose.
- A state depreciation schedule for every asset that took bonus depreciation or more than $500,000 of Section 179.
- Owner compensation support, or the safe harbor election, for every BPT year.
Our QuickBooks tips for New Hampshire entrepreneurs cover receipt capture, and clean payroll and bookkeeping keeps wage totals consistent between federal forms and the BET.
Planning Moves Before Your Tax Year Closes
Equipment timing is the biggest lever: before buying more than $500,000 of equipment, model both returns. An end-of-year accounting review should also settle owner pay and retirement contributions. A BPT declaration is required once estimated tax liability reaches $200 (RSA 77-A:6, II), and BET estimates start at $260, so make estimated tax payments quarterly.
When an owner asks us “What can New Hampshire businesses deduct?”, we start the same way: pull last year’s federal depreciation report and flag every asset that took bonus depreciation, since that is where the two returns split. Then review your financial plan and owner pay with a tax professional before year-end. If you want both calculations run side by side, our tax accountant team in Nashua can prepare them.
Frequently Asked Questions About New Hampshire Business Deductions
Can businesses deduct state taxes?
Yes. BPT and BET payments are deductible on the federal return as levies paid in carrying on a trade or business. Within New Hampshire, the BET works as a credit against the BPT rather than a deduction.
Can you deduct property taxes in NH?
Yes. Municipal property taxes on commercial real estate are a deductible business expense federally and reach the BPT through federal taxable income. Some towns also grant property tax exemptions through the local assessor.
How are LLCs taxed in New Hampshire?
New Hampshire treats each limited liability company as a separate business organization under RSA 77-A:1, I, even one the IRS disregards. Once over the filing thresholds, the LLC files its own BPT and BET returns, and members report their share of income federally.
Who pays the Business Profits Tax (BPT)?
Any business organization with business activities in the state and gross business income above the filing threshold, which is $109,000 for tax periods beginning on or after January 1, 2025 (indexed every two years from the statute’s $92,000 base). The DRA adjusts that figure every two years for inflation, so confirm the current number for your tax year.