Being self-employed comes with plenty of perks, but it also means you’re responsible for managing your own taxes. Whether you’re a freelancer, small business owner, or independent contractor filing a 1099-NEC, you’re considered self-employed in the eyes of the IRS. That means you can take advantage of valuable tax deductions to reduce your taxable income. In this guide, we’ll cover nine key deductions that can help you keep more of your hard-earned money.
1. Self-employment tax
Self-employment tax is a federal tax that covers Social Security and Medicare. Traditional employees split these taxes with their employer, but self-employed individuals are responsible for paying the full 15.3% tax rate (12.4% for Social Security and 2.9% for Medicare) on their net earnings.
The good news is that the IRS allows you to deduct 50% of your self-employment tax when calculating your taxable income. This deduction helps reduce your overall tax bill, even though it doesn’t lower your self-employment tax itself.
2. Contributions to retirement accounts
There are several retirement account options available for independent workers. Each of these accounts provides valuable tax benefits, either by reducing taxable income now or offering tax-free withdrawals later.
Simplified Employee Pension (SEP) IRA
You can contribute up to 25% of your net earnings to a SEP IRA, with a maximum contribution limit of $70,000 for tax year 2025 ($69,000 for tax year 2024). Contributions are tax-deductible, helping reduce your taxable income.
Solo 401(k)
The Solo 401K is designed for self-employed individuals with no employees (other than a spouse). You can contribute to your plan both as an employer and employee. For tax year 2025, you can contribute up to $23,500 as an employee, plus up to 25% of net earnings as an employer, with a total cap of $70,000 ($77,500 if age 50 or older). The total cap is $69,000 for tax year 2024.
Note that you must open and fund your solo 401(k) by December 31 to make contributions for that year.
Traditional or Roth IRA
Traditional IRA contributions may be tax-deductible. Roth IRA contributions are made with after-tax dollars, so you can make tax-free withdrawals in retirement. For tax years 2024 and 2025, you can contribute a maximum of $7,000 to all your IRAs combined (traditional or Roth). If you’re age 50 or older, the max contribution limit is $8,000.
3. Health and business insurance
When you’re self-employed, you’re responsible for securing your own health and business insurance, but the good news is that many of these expenses are tax-deductible.
If you pay for your own health, dental, or long-term care insurance, you may be able to deduct 100% of the premiums, as long as you’re not eligible for an employer-sponsored plan (such as through a spouse). This deduction applies to you, your spouse, and dependents.
Policies that protect your business, such as liability insurance, professional malpractice insurance, or property insurance, are fully deductible as business expenses. However, life insurance premiums are not deductible, even if you’re self-employed, since they’re considered a personal expense.
4. Travel expenses
The IRS says you can deduct many travel-related expenses if they are considered ordinary and necessary for your business. These deductions can significantly lower your taxable income.
Vehicle expenses
You can calculate and deduct the cost of using your car for business in one of two ways:
- Using the standard mileage rate, you’ll track the total distance you traveled for business purposes all year and deduct 67 cents per mile.
- With the actual expense method, instead of counting mileage, you’ll deduct costs like gas, maintenance, insurance, and depreciation based on the percentage of business use.
Business travel
Note that if you plan to deduct travel expenses, your trip must be primarily for business, and you must keep clear records, including receipts and mileage logs. The types of travel expenses you may be able to deduct include:
- Airfare, train, and bus tickets
- Hotel and lodging expenses
- Rental cars, taxis, and rideshares
- 50% of business-related meals
- Conference fees and other necessary expenses
5. Home office space or office rent
If you rent a separate office, the full cost of rent and utilities is deductible as a business expense. If you use part of your home exclusively for business, you can deduct a portion of your housing costs. There are two methods for calculating the home office deduction:
- Simplified method: Deduct $5 per square foot, up to 300 square feet (maximum deduction of $1,500).
- Actual expenses method: Deduct a percentage of rent/mortgage, utilities, property taxes, and home maintenance based on the workspace’s square footage relative to your home.
Regardless of where you work, keeping detailed records of your expenses ensures you maximize your deductions while staying compliant with IRS rules.
6. Startup costs
Starting your own business comes with upfront costs, but the good news is that many of these expenses are tax-deductible. The IRS allows you to deduct certain startup costs before you officially open your doors, helping reduce your taxable income in the early stages of your business. These can include:
- Business formation costs (legal fees, business registration, licenses, permits)
- Market research and advertising (surveys, promotional materials, branding)
- Professional services (consultants, accountants, attorneys)
- Training and education (workshops, certifications)
You can deduct up to $5,000 in startup costs in the first year of your business if your total costs are less than $50,000. If your total startup expenses are more than $50,000, the deduction is reduced dollar for dollar for any amount over $50,000. For example, if your startup costs total $53,000, you’ve exceeded the threshold by $3,000. This means your first-year deduction will be reduced from $5,000 to $2,000.
The remaining costs can be spread out (amortized) over 15 years instead of deducted all at once.
7. Qualified business income
The Qualified Business Income (QBI) deduction is a tax break that allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income from taxable income.
You may qualify for the QBI deduction if you are self-employed or own a pass-through entity, such as a:
- Sole proprietorship
- Partnership
- S Corporation
- LLC (if taxed as a pass-through entity)
For 2024, the deduction starts to phase out if your taxable income exceeds $191,950 (single filers) or $383,900 (married filing jointly).
8. Software, tools, or other equipment and supplies
As a self-employed individual, you can deduct the costs of necessary materials used to run your business, making it more affordable to invest in what you need. Here’s a look at the kinds of supplies you might want to deduct on your next return.
Software and subscriptions
Business-related software (e.g., accounting programs, design tools, project management apps) and professional subscriptions (e.g., industry memberships, online courses) are fully deductible as business expenses.
Office supplies & materials
Items like paper, pens, postage, and printer ink can be fully deducted in the year of purchase.
Business equipment
Computers, phones, printers, and other long-term assets may qualify for a full deduction in the first year under Section 179 (up to $1.22 million in 2024). You can also choose to depreciate higher-cost items over time.
Tools and machinery
If you use specialized tools or machinery for your work, they can also be fully deducted in the year of purchase or depreciated over time, depending on cost.
9. Advertising costs
Marketing is essential for growing your business, and the good news is that most marketing and advertising costs are fully tax-deductible. As long as the expenses are ordinary and necessary for your business, you can deduct 100% of them from your taxable income.
The kinds of marketing expenses you can deduct include:
- Digital advertising: Costs for running paid ads on Google, Facebook, Instagram, or other platforms.
- Website and branding: Expenses for website design, hosting, domain registration, logo creation, and professional branding services.
- Print & promotional materials: Business cards, brochures, flyers, banners, and direct mail campaigns.
- Content creation: Copywriting, photography, video production, and social media management services.
- Sponsorships and events: Fees for sponsoring community events, trade shows, or networking opportunities that promote your business.
There’s no limit on how much you can deduct for eligible marketing expenses, as long as they are directly related to your business.
How to claim self-employed tax deductions
For a business expense to be deductible, it must meet two key IRS criteria:
- Ordinary – A common and accepted expense in your industry. For example, a graphic designer buying design software is an ordinary expense.
- Necessary – Helpful and appropriate for your business operations. For example, an online marketing campaign to attract clients is necessary for a freelance consultant.
If you’re certain your expenses meet these requirements, the next step is to ensure your information is entered into the correct IRS forms when you file your return. Those include:
- Schedule C (Form 1040) – This is the main form used by sole proprietors and single-member LLCs to report business income and expenses. Most business deductions, such as marketing, office supplies, travel, and home office expenses
,are listed here. - Schedule SE (Form 1040) – This is used to calculate and deduct self-employment tax.
- Form 4562 – This is used for claiming depreciation or Section 179 deductions for equipment, machinery, or business vehicles.
- Form 8829 – This is used for claiming the home office deduction using the actual expenses method.
To make filing simpler, TaxSlayer will automatically enter your information into the correct tax form, so you can be sure you’re doing it correctly and claiming the deductions you deserve.
