Self-Employed Tax Deductions

For the self-employed, tax deductions can take on a whole new meaning. It can seem like taxes are here to punish you for the freedom that comes with working independently.

Not only do you have to pay ordinary income taxes but also a self-employment tax, which encompasses the part your employer would typically pay directly. This means a lot more of the tax burden is coming out of your finances, which makes self-employed tax deductions all the more important.

Fortunately, over the years, government legislators have introduced a number of self-employed tax deductions that can help soften the blow.

Self-employment tax

The self-employment tax can seem like a lot. Self-employed workers have to pay 15.3% of the first $142,800 of their wages, tips, and earnings. This is twice what a person working for someone else pays because a self-employed worker must pay what their employer would pay if they were working for someone else.

However, the government does give you a bit of a break on this. You can deduct the portion of the self-employment tax that your employer would have paid when you are determining your adjusted gross income.

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Home office deduction

The home office deduction is another good way to save some money on your taxes. But, be careful when claiming this deduction as the IRS places strict limitations on this deduction. It is important to remember that employees cannot use this deduction.

Also, self-employed individuals can only use this deduction for parts of their home that they regularly and solely use for their business. If you use the portion of your home for any other purpose, you cannot claim the deduction.

You can deduct expenses, such as rent, insurance, utilities, repairs, and mortgage interest. Direct expenses are totally deductible. For example, you could fully deduct the cost of having the electric socket in your office repaired. Indirect expenses may be deducted in one of two ways.

The regular method has you deduct the indirect expenses based on the percentage of your house or apartment that your office occupies. You could also use the simplified method of deducting $5 per square foot of the space you use exclusively for your business. This deduction has a maximum of $1,500 or 300 square feet.

Business vehicle tax deduction

Maybe you use your car a lot for business to meet with clients or even to perform your primary business services. Or, you might just use your car to pick up supplies and attend an occasional meeting with a client. In either case, you'll want to claim your self-employed mileage deduction.

The standard mileage deduction 2023 rate is $0.655 per mile. The IRS has also announced the 2024 per-mile business rate, which is to be $0.67 for the work-related miles you drive in 2024. In order to use this deduction, you'll need to keep track of your mileage for business purposes. One of the best ways to do this is by using Driversnote. the app makes tracking your mileage for your self-employed mileage deduction easy. Here's how:

• The app allows you to automatically record your trips by using its motion detector.
• You can record trips without the need to open the app. This makes it far more likely that you'll record all of your trips.
• The app allows you to save frequently visited places, thus making tracking your trips easier.
• You can download a tax-compliant mileage report any time you want in either Excel or PDF format.
• If you use more than one vehicle for business purposes, the app will record a separate log for each vehicle.
• The app will also track mileage and keep separate logs for multiple workplaces.

Find out more about mileage deductions in our guide on self-employed mileage deduction rules.

Health insurance deduction

Tax deductions for the self-employed can sometimes include health insurance premiums. Self-employed individuals can deduct health insurance premiums for themselves and their families under two conditions. They must not be eligible to participate in their spouse's employer-sponsored health plan. Also, their business must make a profit.

Retirement savings contribution

If you are looking for more great tax deductions for self-employed, you can deduct your contributions to certain retirement accounts. A Keough plan, Roth IRA, or SEP plan are all options. Or, you could choose a solo 401(k) option. This option is becoming more popular.

If you choose a solo or one participant 401(k), you can contribute up to $61,000 for 2022. Also, individuals who are 50 or older may contribute an additional $6,500 or 100% of their earned income, whichever is less.

Continuing education deduction

It's important to keep your skills up-to-date in your field to run a successful business. Fortunately, the IRS is willing to help you do this. You can deduct the costs of your qualifying work-related deduction.

These costs include items such as tuition, supplies, books, lab fees, transportation to and from your classes, and other related expenses. Just make sure the education is for maintaining or improving your skills for your current work.

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Internet and telephone tax deduction

If you use your cell phone for business, you can deduct a percentage of your cell phone bill from your taxes. Or, if you have a dedicated line for your business, you can deduct the total amount of the bill. The same is true of your internet bill. You can deduct all or part of your bill, depending on whether or not you have a dedicated line for your business. So, be sure to claim these tax write-offs for the self-employed.

Office supplies

The cost of the office supplies you use can also be deducted. This includes things like paper, pencils, postage, pens, and other similar supplies. Most common office supplies are deductible. You will generally deduct the cost of the office supplies you used during the year.

You also may be able to deduct some other more expensive items, such as computers or other office equipment in the year you buy them. Although, the item must have a useful life of a year or less. Office equipment with a useful life of a year or more will likely need to be depreciated. However, these deductions can still add up to quite a bit.

Final thoughts on self-employed tax deductions

These are just some of the more common tax deductions you might be able to use as a self-employed worker. A tax professional may be able to point out more deductions. They could also help you to determine which deductions apply in your specific circumstances. But, don’t miss out on the tax deductions for the self-employed listed in this article.

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