Log In 14 Tax Deductions for the Self-Employed
Self-employed individuals, freelancers, and small business owners must understand all the available tax deductions to reduce their taxable income and alleviate financial burdens and business expenses.
In this article, weāll explore the top 14 essential tax deductions, like health insurance premiums, home office costs, and others that will reduce your annual tax bill. You will learn how to maximize the deductions you qualify for and increase your tax savings.
Key Takeaways
- Using all available tax deductions will keep your business as profitable as possible.
- Legitimate tax deductions include insurance premiums, home office expenses, business use of your vehicle, internet costs, retirement contributions, and more.
- Itās important to keep track of your business expenses when planning to deduct them from your taxable income.
- Tracking your expenses is easier when itās done automatically, through an accounting program.
Table of Contents
- Self-Employment Tax
- Health Insurance Premiums
- Home Office Expenses
- Advertising and Marketing Costs
- Internet and Phone Bills
- Car Expenses
- Business Travel
- Business Meals
- Rent
- Education Expenses
- Startup Costs
- Retirement Contributions
- Interest on Loans and Bank Fees
- Business Insurance and Licenses
- Tax Deductions for Sole Proprietorships
- Tax Deductions for Independent Contractors
- Effortless Tax Management for the Self-Employed with FreshBooks
- FAQs on Tax Deductions for Self-employed
1. Self-Employment Tax
You must pay self-employment tax and file Schedule SE (Form 1040), if your net income from self-employment was $400 or more. As a self-employed person, you pay the full amount of Social Security and Medicare taxes, because you donāt have an employer splitting the cost with you. If youāre self-employed, you must pay 15.3 percent of your business income toward the self-employment tax, which covers Medicare and Social Security. Luckily, the IRS allows self-employed individuals to deduct the employer-equivalent portion of their SE tax, which is half of the tax due (7.65%) in figuring out their adjusted gross income (AGI). This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax.
The IRS has more information about self-employed tax deductions on its website.
2. Health Insurance Premiums
Self-employed workers need to purchase their own health insurance coverage, which can be a big expense. Also, finding suitable health insurance for freelancers or self-employed is crucial for protecting your health and finances. But if youāre self-employed and have a net profit for the year, you can also claim the amount you paid toward your health insurance premiums on your income tax return as an adjustment to income. This health insurance deduction is particularly beneficial, as it covers your health insurance premiums and any coverage you purchased for spouses and dependents.
3. Home Office Expenses
Many self-employed people work from a home office and may be able to claim expenses related to their home office on their tax return. There are two methods to calculate the deduction: the simple method and the regular method. Under the simple method, you can deduct $5 for every square foot of your home used in your business (up to 300 square feet).
The regular method allows you to deduct home office expenses based on the percentage of your home that your home office takes up. Deductible expenses include rent, mortgage interest, utilities, repairs, and home or renterās insurance. If, for example, you repair the floors in your entire home, you can only write off the portion of that expense that applies to the repair work done in your home office. The IRS details the basic requirements you must meet to qualify for a home office deduction.
4. Advertising and Marketing Costs
Marketing is a big part of growing a business, which is why many expenses related to advertising are tax deductible. If youāre a sole proprietor, you can deduct advertising and marketing costs like:
- Digital ads, including ad placement on websites
- Website development for your business
- Social media promotion, like ads on popular sites or sponsored content
- Print advertising, like magazines, newspapers, or fliers
- Market research
- Marketing agency fees
- Attendance fees and costs for attending networking events
You can only claim this deduction on expenses that directly support the growth of your business.
5. Internet and Phone Bills
Modern self-employed individuals rely on the internet and phone to conduct their business, so the Internal Revenue Service allows small business owners to deduct phone and internet expenses. If you work from home and use personal internet and phone services for business, you need to calculate the percentage of time those services are used for business purposes.
If, for example, you calculate that 40 percent of your internet use and 25 percent of your phone use is dedicated to business, you can deduct 40 percent of your annual internet costs and 25 percent of your phone bills on your tax form.
The exception is that you cannot deduct any of the expenses of your first home landline. If you have a second landline used exclusively for business, you can deduct the cost as a business expense.
6. Car Expenses
If youāre self-employed you also have the opportunity to claim vehicle expenses that relate to your work. You need to determine how much of your car usage is for business use and how much is for personal use. If you use your car for business 25 percent of the time, then you can write off 25 percent of any ordinary and necessary expenses using the actual expense rate. This includes gas, oil, tolls, parking, repairs, and maintenance costs. Or, if you buy a new car, you can write off 25 percent of the total cost.
If you choose the IRS standard mileage rate, you can expense your mileage for business purposes. For the 2025 tax year, the standard mileage rate for business travel is cents per mile, up 1.5 cents from the previous year. So, youāll need to multiply your business mileage by .70 to determine how much you can write off as a business expense.
7. Business Travel
If you travel for business, you can deduct travel expenses on your income tax return. For travel to qualify as a business expense deduction, it has to meet the following standards:
- Travel must be necessary for your business.
- You must have traveled away from your area of business for longer than the length of a standard business day.
- The trip must require you to sleep or rest along the journey.
If your trip qualifies, you can expense 100 percent of the cost of flights, hotels, car rentals, dry cleaning, and tips. You can also put the cost of meals while traveling on your tax deductions and take advantage of enhanced mileage rates when using a personally-owned car for business travel. For 2025, the standard mileage rate for business travel is 70 cents per mile.
8. Business Meals
In 2025, self-employed individuals can deduct half of the total cost of a business meal. Itās worth noting that food bought at grocery stores or convenience stores would not qualify.
If you take clients out for meals, you can expense them at 50 percent of the total cost, as long as you discuss business as part of the meal. Youāll need to keep records of the following information to claim the expense:
- The date and location of the meal
- The name of the client you met with
- The total amount paid for the meal
Be sure to save all your meal receipts to track all the relevant information for your tax return. Jot down a few notes on the back of your receipt so you remember all the necessary details.
9. Rent
Eligible self-employed people and small business owners who rent a business property, office space, or retail location or who lease equipment can deduct their rent expense. You can also deduct the cost of a co-working space, workshop space, or storage unit as long as itās directly related to your work.
Home office rent is different and should be addressed under the home office deduction, if applicable in the current tax year.
10. Education Expenses
Education expenses include any professional development or learning opportunities that correlate to running your business. This might include online or in-person classes or training, events and conferences surrounding your field of work, and any books, journals, newspapers, or other publications thatāll improve your industry knowledge.
You can also write off expenses related to certifications and workshops that enhance skills relevant to your business. An educational experience is a qualified business income deduction as long as it directly relates to improving or maintaining your current expertise in the trade.
11. Startup Costs
Starting a business costs a lot of money, and you often wonāt turn a profit within the first few years. Luckily, you can write off business startup costs on your taxes, like market research, business formation fees, promotional campaigns, consulting fees, and more.
The IRS allows business owners to deduct up to $5,000 of startup costs and $5,000 of organizational costs in the first year. Depending on your unique situation, you may also be able to amortize the remainder of your startup costs over 180 months.
12. Retirement Contributions
Self-employed workers canāt rely on employer-funded retirement savings plans, so as a self-employed person, you can make a retirement plan contributions deduction on your income tax filings. If you have a Simplified Employee Pension (SEP), SIMPLE, or an Individual Retirement Account (IRA), you can deduct the cost of the contributions, up to the limit set by the IRS. Refer to the IRS retirement plan contribution limits for more information.
13. Interest on Loans and Bank Fees
If you take out a loan to start or grow your business, you can write off the interest on the loan on your tax return. You can also deduct the accumulated credit card interest on your business credit card and any business banking fees. This deduction is not available for personal interest expenses.
14. Business Insurance and Licenses
The cost of any business insurance or professional licenses you need to run your business can be deducted for tax purposes. Before making any business insurance deduction, ensure the insurance or licenses you deduct apply solely to your business.
Tax Deductions for Sole Proprietorships
Sole proprietorships can deduct many of their regular business expenses when filing income tax. The tax deductions that apply to sole proprietorships include:
- Home office expenses
- Business-related travel and mileage
- Health insurance
- Startup costs
- Depreciation
- Interest on loans and banking fees
Tax Deductions for Independent Contractors
The most common tax deductions for independent contractors include:
- Home office expenses
- Rent or lease payments
- Business-related travel, meals and entertainment
- Commissions and fees
- Advertising and promotion
- Business Insurance
- Business licenses
- Contract labor
- Supplies
- Education
Effortless Tax Management for the Self-Employed with FreshBooks
Leveraging self-employed tax deductions is important for maximizing savings. By claiming your deductible business expenses from your taxable income, you can save hundreds, or even thousands, in tax payments.
FreshBooks helps simplify the process by tracking expenses, organizing receipts, and generating detailed reports tailored for tax time. You can connect your business bank account or company credit card to FreshBooks and scan your paper receipts for automatic up-to-date tracking with easy organization into tax-friendly categories.Ā Ā
Try FreshBooks for free to see how easy it is to maximize your tax benefits using automatic receipt and expense tracking.
FAQs on Tax Deductions for Self-employed
To learn more about deductions you can make on your taxes as a self-employed individual, read the frequently asked questions below.Ā
What is the 20% qualified business income deduction (QBI)?
The 20% self-employment deduction is the Qualified Business Income Deduction, which allows eligible self-employed taxpayers to deduct up to 20% of their qualified business income plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
How do I get the biggest tax refund when self-employed?
Maximize your annual deductions by documenting all expenses, then claim as many as possible on your taxes. FreshBooks is a helpful accounting software option that makes tracking your business expenses easy.
Can I write off my electric bill if I work from home?
Yes, you can write off a portion of your electric bill if you have a dedicated home office space. Youāll have to determine the percentage of your home the space takes up, then divide your electric bill by this percentage.
Can you write off clothes for work self-employed?
Yes, if the clothing is directly related to the business, is an industry standard, and is necessary and ordinary in the field. It must also not be anything you could reasonably wear on your days off. Some deductible examples are safety gear, uniforms, and coveralls. Suits, dresses, shoes, etc. are not deductible.
More Useful Resources
Explore our diverse tax deduction guides catering to various niches. From small businesses to real estate agents, find valuable insights to optimize your tax savings.
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