Tax Deductions for Self Employed

Home Office Deduction

Working from home is one of the greatest perks of being a freelancer. It also provides you with a significant tax deduction, if you qualify for the home office deduction.

To be eligible for the home office deduction, you must meet one of the following requirements:

• Exclusive and regular use: You must regularly use part of your home exclusively for conducting business. For example, if you use a spare room to run your business, you can take a home office deduction for that extra room.
• Principal place of business: You must prove that you use your home as your principal place of business. If you conduct business at an outside location apart from your home and use your home regularly, you can still qualify for a home office deduction.

You can claim the deduction as a homeowner or even as a renter, and you can use the deduction for any type of home where you reside: a single-family home, an apartment, a studio, or a houseboat. However, you can’t use it for temporary lodging.

The home office deduction offers you a tax write-off for items such as mortgage interest, rent, utilities, real estate taxes, maintenance, repairs, and other related expenses.

To know more about the home office deduction, click here

Education Expenses

According to the IRS, for your education expenses to be considered as a write-off towards your taxable income, it must help to “maintain or improve your job skills”.

To ensure that your education can be considered a write-off, one of the following conditions must be met:

• The education must help in maintaining or improving skills for your business
• Education must be required by law to maintain status/certification
• The course or the program you undertook, must relate to your current business

As per the IRS, you can deduct the costs of “qualifying work-related education”, which includes expenses such as-

• Tuition and fees
• Room and boarding
• Transportation
• Online courses
• Subscriptions
• Internet fees
• Research & typing

To know more about the education expense deduction, click here

Car or Mileage Deduction

As a self-employed worker, freelancer, or independent contractor if you own a car and use it for business purposes, you can deduct mileage and car-related expenses. For many self-employed workers, mileage is the largest deductible on their tax returns.

Moreover, the deduction is not just limited to Uber, Doordash, or rideshare drivers. If you work primarily from a home office, the occasional supply run, client meeting, or business trip also counts.

There are two methods to claim the mileage tax deduction:

• Standard Mileage Method:You can multiply your business miles driven by the standard rate (65.5 cents in 2023). This amount includes driving costs, gas, repairs/maintenance, and depreciation.
• Actual Expenses Method:You can track the actual costs of operating your car. Qualified expenses for this purpose include gasoline, oil, tires, repairs, insurance, tolls, parking, garage fees, registration fees, lease payments, and depreciation licenses.

Both deductions will help you reduce your taxable income, however, the mileage deduction requires you to maintain a mileage log. The actual expenses method consist of multiple deductions, which may be more beneficial. The standard mileage deduction is a good option if you drive a lot for your work.

To know more about the car or mileage deduction, click here

Business Travel

As an entrepreneur, freelancer, independent contractor you can claim tax deductions for your business travels. According to the IRS, if you wish to claim business travel. Your trip has to be:

• Mostly business-related
• An “ordinary and necessary” expense
• Someplace far away from your “tax home”

The following list represents some common travel-related write-offs you can take:

• Transportation costs
• Lodging
• Meals
• Wi-Fi
• Shipping
• Dry cleaning

To know more about the business travel deduction, click here

Business Meals

Most freelancers and small business owners tend to take out clients, vendors, or potential employees for some meal or entertainment to build their business. These business meals and entertainment are legitimate business tax deductions.

The IRS describes a business meal as the following: food and beverages provided to a current or potential business customer, client, consultant, or similar business contact.

So, as a freelancer, you can deduct the cost of the following:

• Taking a client out for lunch
• Lunch with a coworker/independent contractor
• Meeting with a potential referral
• Business discussion with anyone
• Meals consumed while traveling

To know more about the business meals deduction, click here

Utilities

As a self-employed worker, if you happen to have a designated office area within the premises of your home, you can deduct utilities as part of your home office expenses. If you rent an office space for your business start-up you can deduct the cost of the utilities.

Utilities generally include expenses such as:

• Electricity
• Gas
• Water
• Waste
• Disposal
• Heating
• Sewage

However, you are only allowed to write off the business use percentage of your utilities, i.e., the portion that is used primarily for working.

Rent

For most freelancers, rent is one of the biggest tax deduction opportunities available. You can also write off some of the expenses related to your home or workspace, such as utility bills, supplies, equipment, and phone service charges.

For certain professions, you may need a place to operate your business, like renting a warehouse to store inventory, or an office space that you work from, or even having your own apartment where you also conduct your business.

Moreover, rent as a tax deduction is not just limited to your workspace. If you make long business trips, you may consider avoiding wear-and-tear of your own vehicle and renting a car instead. As per the IRS, any work-related travel expenses (rental cars, flights, hotel rooms) are deductible.

To know more about the rent deduction, click here

Advertising & Marketing

According to the IRS, freelancers can deduct all ordinary and necessary business expenses, which also include advertising expenses.

Advertising as a business expense includes:

• Advertising in various media- newspapers, TV, internet, cable, magazines and social media
• Marketing activities
• Promotional and public relations expenses
• Online activities
• Producing advertising materials
• Costs of advertising events

However, as a self-employed worker, you cannot deduct primarily personal costs, even if they have some promotion value. Moreover, you can't deduct the cost of advertising in any publication or website used by or for political affiliation.

Phone and Internet

Cell phone and internet costs are necessary to run any business,, and if you happen to use both regularly for conducting your business then you may get a deduction. You can deduct your entire bill if you have a separate business cell phone or internet connection. If you don't have a dedicated line, you can deduct the percentage used for business.

Moreover, if you have a website or use the internet to do business, some or all of your internet costs may be deductible.

You cannot deduct the cost of your regular phone unless the calls or services are directly related to your business. But you are allowed to deduct the full expense of having a second, business-only line in your home.

If you also use your cell phone for personal use, you can only deduct the direct business expenses and the business use percentage of the phone.

To know more about the phone & internet deduction, click here

Memberships & Subscriptions

As a freelancer, if you happen to be a member of a professional association, a networking organization, or subscribe to business/trade journals specifically to help you in your business, you can deduct these costs.

Subscriptions to magazines, newspapers, journals, newsletters, and similar publications can also be a deductible expense.

To know more about the memberships & subscriptions deduction, click here

Credit Card Interest

The interest you pay on a credit card is considered as a personal expense, however, it’s a different story if a business is involved. To convert your credit card interest into a deductible, your credit card debt must be related to your trade or business activity.

To know more about the credit card interest deduction, click here

Office Supplies

Any equipment or supplies you need to perform your job qualifies as a deductible expense. This includes any and all office supplies and materials.

If you keep incidental materials (pen/ink/stationary items) and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if the following requirements are met:

• You don’t keep a record of when they are used.
• You don’t take an inventory of the amount on hand at the beginning and end of the tax year.
• This doesn’t distort your income.

You can also deduct the cost of books, professional instruments, and equipment if you normally use them within a year.

To know more about the office supplies deduction, click here

Business Loan

If you take a business loan, you can write off your interest payments as a business expense. The IRS generally demands certain conditions to qualify your business loan:

• You must be legally liable for the loan
• You and the lender must unanimously agree that you intend to pay off the debt
• And you and the lender have a true debtor-creditor, or lender-borrower, relationship

Charitable Contributions

Charitable contributions are one of the best tax-saving opportunities for taxpayers. Not only does the charity benefit, but taxpayers enjoy tax savings by deducting part or all of their contributions on their tax returns, thus creating a win-win situation.

Charitable contributions can reduce your tax bill if you choose to itemize your taxes on Schedule A on Form 1040. To be deductible, you must make contributions to qualified organizations. Contributions to individuals, political organizations, and candidates are never deductible.

To know more about the charitable contributions deduction, click here

Retirement Plan

If you are a self-employed small business owner, you can set up a qualified retirement plan for yourself and your employees. The best part is that you may be able to claim a deduction on your individual federal income tax return for the amount you contributed to your IRA.

Health Insurance

As a self-employed individual, you can claim a deduction on your healthcare premiums, regardless of whether you itemize your deductions or not. However, you may be ineligible for the deduction if you participate in another employer’s plan and elect not to, or you have another job that offers a health plan, or you receive coverage through a spouse's employer-sponsored plan.

The IRS defines the type of policy premiums you can claim as a self-employed health insurance tax deduction. To qualify for a self-employed health insurance deduction, the IRS states a policy must fall into at least one of the following three categories.

• Dental insurance
• Medical insurance
• Long-term care (LTC) insurance

In addition, you can’t deduct more than what you earn from your business during that tax year. If your premiums cost more than your income, you can claim up to the income amount as your self-employed health insurance deduction, and you may be able to claim the excess costs as medical expenses in your Schedule A. If you had a tax loss for the year, you won’t be able to claim this deduction.

To know more about the health insurance deduction, click here

Consulting & Professional Service Fees

Claiming back expenses is a source of relief for freelancers and small business owners. So, if you are self-employed, you can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are incurred for business matters.

To know more about the consulting and professional service fees deduction, click here

Start-up

Startup expenses can be costly, but the good news is the Internal Revenue Service (IRS) cuts business owners a bit of a break when it comes to taxes. So, you can deduct the costs associated with running your business including the advertising & marketing expenses, bank fees, wages & salaries, furniture, COGs, meals, travel, and etc.

To know more about the start-up tax deduction, click here

Student Loan

If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This includes student loans, tuition and fees, transportation, and etc. Some of the student loan expenses include American Opportunity Credit, Lifetime Learning Credit and Coverdell Education Savings Account.

To know more about the student loan deduction, click here

Home Loan

The home mortgage deduction is one of the most popular in the US tax code, since it allows you to deduct, within limits, the interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home or a second mortgage.

To be eligible for home mortgage interest deduction you must file form 1040 or 1040-SR and itemize deductions on Schedule A. Moreover, you need to ensure the mortgage is a secured debt on a qualified home in which you have an ownership interest.

To know more about the home loan deduction, click here