How to Claim AI Tools as Deductions for Your Business

What are examples of deductible AI tool expenses?

Here's how three self-employed workers might calculate their AI deductions.

A content creator with mixed use

A creator pays $30 per month for Runway to generate B-roll and edit videos. Eight out of every 10 projects are for sponsored content, while the rest are personal. The annual cost is $360, and the 80% business share is $288. The creator saves the annual billing history and a note showing the project-based calculation.

A graphic designer with business-only use

A designer pays $25 per month for Photoshop and uses Generative Fill to expand backgrounds and remove unwanted objects from client photos. Because the account is used only for paid projects, the full $300 annual cost can generally be a business expense.

A freelance developer who uses Codex

A freelance developer pays $20 per month for Codex and uses it to build custom websites and apps for clients. They use Codex 80% for paid work and 20% for personal projects. The annual cost is $240, and the business share is $192.

Where do you deduct AI tools on Schedule C?

1. Add up what you paid. Include subscriptions, renewals, credit packs, and add-ons, then subtract refunds.
2. Calculate the business share. Deduct the full cost of business-only tools and only the business-use percentage of mixed-use tools.
3. Keep your records. Save the invoice and matching bank or card transaction. For mixed-use tools, add a short note showing how you calculated the business percentage.
4. Report the expense. Most freelancers and sole proprietors list recurring software under “Other expenses” on Schedule C, Line 27a, with a description such as “Software subscriptions.”

If you don't want to do all this yourself, download Keeper! Connect your bank, and we'll keep track of your transactions and help you keep your business organized.

Can you take the standard deduction and still claim AI tools as write-offs?

The standard deduction applies to personal taxable income (for example, W-2 income), while write-offs apply to 1099 income. Self-employed workers can generally take the standard deduction and deduct business expenses on the same return.

Can you deduct AI subscriptions, API fees, and usage credits?

AI expenses can be deductible regardless of billing model when they're used in service of the business:

• Monthly or annual subscriptions for chatbots, design tools, writing assistants, transcription services, and other business software
• Usage credits for image generations, video processing, audio transcription, or other metered features
• API fees when you connect an AI model to a website, automation, app, or internal business workflow
• Paid add-ons and upgrades that add AI features to software you already use for the business
• Platform subscriptions that bundle AI with other features, even when the invoice does not assign a separate price to the AI tools

You can deduct only an amount you actually paid. Free AI features and free promotional credits can't be deducted. If a client reimburses you for an AI expense, you also cannot treat the reimbursed amount as an unreimbursed business cost.

Can you deduct an AI tool you also use personally?

If you use a tool only for business, you can generally deduct the full amount you paid. If you use the same account for work and personal projects, deduct only the percent you use the account for business.

For example, suppose an AI subscription costs $240 for the year. You review your usage and determine that 75% supported client work while 25% was personal. Your business deduction would be $180: $240 multiplied by 75%.

When can’t you deduct AI software?

AI software isn't deductible in these situations:

• Personal use: If you use AI software for personal purposes (for example, planning vacations or editing videos for your personal TikTok), you can't claim that personal use as a write-off.
• No business connection: Paying for a tool isn't enough; you have to actively use it for work.
• W-2 employees: W-2 employees can't take business deductions.
• Free tools: You can't claim write-offs for free credits, refunds, or charges that a client reimbursed.
• Double counting: You can only claim an expense once, even if it appears on multiple records. For example, if you purchase a subscription through the App Store and it appears on both your App Store receipt and bank statement, claim it only once.

Frequently asked questions about AI write-offs