10 Self-Employment Tax Deductions

There are many benefits to being self-employed, but it also makes doing your taxes more complicated. Thankfully, there are many tax benefits that you can take advantage of. Here is a guide to some of the best self-employment tax deductions.

What can I write off on my taxes as a self-employed taxpayer?

Here are some common expenses you may be able to write off when you are self-employed.

1. Home office deduction

The home office deduction allows self-employed workers to claim home office expenses they incurred while earning income in their businesses. When you take a deduction for your home office, you can choose either the simplified home office deduction or the regular method.

Simplified home office deduction

The simplified option allows you to deduct $5 per square foot of your home office space (up to a maximum of 300 square feet). For example, if your home office is 150 square feet, you would have a $750 deduction (150 square feet x $5). It is a simpler method because it does not require tracking your actual home expenses.

Utilities deduction under the regular method

The utilities deduction is included as part of the simplified home office deduction, or you can calculate the exact portion of your utility bills that are considered to be used for business. For example, let’s assume your home is 1,500 square feet and your office is 150 square feet. Your office is 10% of your home. If your utility bills total $500 monthly ($6,000 a year), you can deduct $600 for your home office utilities. In this instance, the simplified method from above would be a better option.

Utilities include electricity, gas, and water. Sometimes, cable, internet, and cell phone bills can be included. If you have a service business—such as a hair salon, massage studio, or personal training operation—that you run out of your home and that requires background noise or entertainment, cable or internet may also be included in your utility calculation. If you have a separate cell phone or pay for a second line that is used 100% for business, you can also write off 100% of those costs.

2. Section 179 deduction

If you have a job that requires you to drive for work, you may be able to claim the Section 179 deduction. The deduction can be taken in the year you purchase and begin to use your vehicle for business. The maximum section 179 expense deduction is:

• $28,900 for heavy sport utility vehicles, or SUVs (6,000 to 14,000 pounds gross vehicle weight) placed in service in tax year 2023.
• $20,200 for passenger automobiles, including a truck or van, placed in service in 2023.

When you use your vehicle for both business and personal purposes, you can only claim the section 179 deduction if you use the vehicle more than 50% of the time for business. If you meet this minimum, you still have to multiply the vehicle cost by the business use percentage to calculate your allowable Section 179 deduction.

For example, if you purchased your vehicle for $25,000 and used it for business 70% of the time, your allowable Section 179 deduction is $17,500 ($25,000 x 70%).

3. Vehicle use deduction

You can deduct the costs of operating a vehicle for business using either the standard mileage rate or your actual vehicle expenses. You always have the option to use your actual vehicle expenses.

If you plan to use the standard mileage rate, you should use it in the first year the vehicle is used for business. In later years, you can choose either the standard mileage rate or actual expenses. A mileage tracking app can help you track your business versus personal mileage. The IRS has set the standard mileage rate for 2024 at 67 cents per mile driven for business use. For example, let’s assume you drove 20,000 total miles in the tax year, of which 15,000 miles were business related. If you use the standard mileage rate, you would have a $10,050 deduction (15,000 miles x 0.67 per mile).

Actual vehicle expenses deduction

If you are using your actual vehicle expenses, keep receipts for all your vehicle-related expenses, such as gas, repairs, maintenance, oil changes, and car insurance. If you use the vehicle for business and personal purposes, you can only claim the percentage of your vehicle expenses related to the business portion.

For example, let’s make the same mileage assumptions from the above scenario. If you had $4,000 of vehicle-related expenses in the year, you would have a deduction of $3,000 (15,000 business miles / 20,000 total miles x $4,000 actual expenses). In this instance, it would be much more beneficial to use the standard mileage rate.

4. Qualified business income deduction

The qualified business income (QBI) deduction allows you to deduct up to 20% of your QBI plus 20% of qualified real estate investment trust (REIT) and qualified publicly traded partnership (PTP) income. It is available to self-employed people and small business owners who have passthrough income from a business such as a sole proprietorship, partnership, S corporation, or certain limited liability companies (LLCs).

QBI is defined as the “net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business.” You can claim the QBI deduction whether or not you itemize your deductions.

Beware, there is an income limit that affects your ability to claim the QBI deduction. The income limit starts at a taxable income of $191,950 for a single taxpayer or $383,900 for married taxpayers filing jointly in 2024. The income limit increases every tax year. Beyond that income level, your deduction may be phased out depending on the nature of your business.

5. Self-employment tax deduction

The self-employment tax is based on a percentage of your net earnings from self-employment. It is generally calculated on 92.35% of your net earnings from self-employment, and the rate totals 15.3%—12.4% for Social Security tax and 2.9% for Medicare tax.

If you were working for another employer, they would withhold half that amount from your wages and pay the other half on your behalf. When you are self-employed, you must pay both the employee and employer-equivalent portion of the self-employment tax.

To mitigate this drawback to self-employment, the IRS allows you to deduct 50% (the employer-equivalent portion) of your self-employment tax when you calculate your adjusted gross income for income tax purposes.

Note, you still have to pay the full amount of your self-employment tax. It is only a deduction on your income tax return.

6. Health insurance deduction

Your health insurance and dental insurance premiums may be deductible. The self-employed health insurance deduction includes amounts you paid for health or dental insurance for yourself, your spouse, or your children under age 27. However, you cannot claim this deduction if you are eligible to participate in an employer-sponsored health plan elsewhere—such as through your spouse’s job. This is the case even if you do not participate in the plan or the health plan is significantly more expensive than yours.

7. Business insurance premium deduction

Business insurance can be expensive, depending on the nature of your business. Business insurance is tax-deductible to the extent that it is ordinary and necessary for your business.

8. Business loan interest deduction

The interest portion of a business loan is tax-deductible to the extent that the loan is used for business purposes. Interest on a personal loan is not tax-deductible.

9. Business travel deduction

You can deduct travel expenses that are ordinary and necessary while traveling away from your home for business. The IRS considers you to be traveling away from home if you:

• Are away from the general area of your tax home—where your main place of business is located—for longer than an ordinary work day.
• Need sleep or rest to meet the demands of your job while away.

Note that you cannot deduct travel expenses for your family members unless they also work in your business.

10. Business meal deduction

The U.S. General Services Administration sets a standard meal and incidental expense (M&IE) rate per day based on the location of your business travel. You can use the M&IE rate to deduct a set daily amount rather than your exact meal expenses. If you choose to deduct your actual meals, be sure to keep your receipts. Certain meals are 100% deductible, while others are only 50% or nondeductible. Meals must not be lavish or extravagant to be deductible, and meals for family members are not included.

Fully deductible meals and entertainment include:

• A company-wide holiday party.
• Meals included in taxable employee compensation on their W-2s.

Meals and entertainment that are 50% deductible include:

• Meals while traveling away from home for business.
• Meals with clients where business is discussed.
• Meals at a business convention or business luncheon.
• Food during a board meeting.

Nondeductible meals and entertainment include:

• Entertainment, amusement, or recreation—such as paying for social clubs, theater, concerts, ball games, night clubs, etc.

TIME Stamp: There are many deductions for self-employed taxpayers

If you plan ahead, you can maximize your deductions as a self-employed taxpayer. Use the standard or simplified rates for things like the home office deduction, meals, and mileage to make your life easier. If you choose to deduct actual expenses, be sure to keep accurate records and keep your receipts.

Because the U.S. tax code is so complex, this article only scratches the surface of all the currently available deductions. For more information, speak to a tax professional who can provide tax advice and recommendations specific to your business and personal needs.

Frequently asked questions (FAQs)

What is the 20% self-employment deduction?

The qualified business income (QBI) deduction—or Section 199A deduction—allows you to deduct up to 20% of your qualified business income on your income tax return. It is available whether or not you itemize your deductions.

QBI is the net amount of qualified income, gain, deduction, and loss from a trade or business. It applies to sole proprietorships, partnerships, S corporations, certain LLCs, and certain trusts or estates. The QBI deduction is in effect for tax years beginning after December 31, 2017, and ending on or before December 31, 2025.

Can you deduct 50% of self-employment tax?

You can deduct 50% (the employer-equivalent portion) of your self-employment tax to calculate your adjusted gross income for income tax purposes. You still have to pay the employer and employee portions of self-employment tax, but half of that amount is deductible when calculating your income tax.

How do I get the biggest tax refund when self-employed?

You can lower your tax bill by maximizing all the deductions you can claim as a self-employed taxpayer.