Ah, the glamorous life of the self-employed—setting your own hours, being your own boss, and navigating the maze of tax deductions like a pro. It’s a wild ride, but fear not! We are here to guide you through the jungle of expenses you can deduct.
In a nutshell, self-employed people can work as freelancers or independent contractors. If you are one, you probably work part-time or full-time and your income is not reported in Form W-2. You can be paid in cash, check, direct deposit, or third-party payment (think Paypal, Stripe, Square, Payoneer, etc). At the beginning of the year, the payment issuer will send you one or more of these forms: Form 1099-NEC, Form 1099-MISC, Form 1099-K, or no forms at all.
It’s your responsibility to keep track of your business income and expenses. The issuers who send you the tax forms will send a copy to the IRS, so you must report this income in your tax return. Of course, you can deduct business expenses incurred when making the income. The question is: which expenses can I deduct?
Whether your self-employment results in a profit or loss, here are several business expenses you can deduct:
- Home Office Deduction (aka “The Pajama Deduction”): The space in your home that can be claimed must be your principal place of business. Therefore if you work in your kids’ play area, unfortunately you can’t claim the home office deduction. But kudos for earning an income while doing your parental duties! You can use the regular or simplified options for calculating it. Don’t worry. Your tax software or your tax preparer will help you do this.
- Continuing training and education expenses (aka “The School of Hard Knocks”): The education that qualifies must be the kind that maintains or improve your skills in your current line of work. The annual fee to your professional organization in which you network and gain clients? Yes. Travel expenses to attend a business conference? Yes. Class fee for a cooking class while you work as a plumber? Sadly, no. You might learn how to cut chicken bones efficiently to avoid clogging the pipes, but the IRS won’t think so.
- Self-Employed Health Insurance Premiums (aka “The Doctor’s Note”): As a self-employed person, health insurance can be costly. The good thing is that you can deduct insurance premiums you pay for yourself, your spouse, and your dependents under your health plan if your business results in a net profit.
- Vehicle mileage driven for business (aka “The Road Trip Write-Off”): You can either claim a standard mileage rate or actual expenses. Keep in mind this is an area that’s frequently audited. You must keep a detailed log for your business trips (we recommend using Quickbooks mobile that does it automatically) and any vehicle expenses and fees.
- Phone, internet, and fax service. If you’re using your personal phone for business, you must have a record keeping system to determine your business usage. For example, if you use your personal phone 35% for business, then you can deduct 35% of the total phone expenses.
- Qualified Business Income Deduction. Often shortened to QBID, small business owners can deduct up to 20% your qualified business income from federal taxes for tax years 2017-2025. You don’t need to itemize your deduction to take this deduction. Most tax software will calculate QBID automatically, so all you need to do is check if this deduction is claimed, if you qualify.
- Self-Employment Tax Deduction. The IRS imposes a 15.3% of self-employment tax on net earnings of self-employed people, however you can deduct 50% of your total self-employment tax on your tax return. Like QBID, the self-employment tax deduction is calculated automatically by your tax software.
- Retirement contribution. You can deduct contributions made to qualified plan, such as SEP IRA. This deduction depends on several conditions, so you should speak to a tax professional to guide you in this area.
- Other expenses: credit card interest, advertising, rent, home office expenses, and startup expenses. Many other business expenses can be deducted. Keep track of all your business-related receipts so you won’t lose the deduction.
- Home Office Deduction: Who Really Qualifies? (Simple, Friendly Guide)
- Losing Your Tax Refund: How It Happens (and How to Make Sure It Doesn’t Happen to You)
- The Tax Deadline Is Looming—but I’m Not Ready. What Are My Options?
- Moving from California to Texas? How the Move Affects Your Taxes (Plain-English Guide)
- Moving States? How That Affects Your Taxes (A Simple, Real-Life Guide)
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