Self-employed professionals face unique challenges when tax season comes around. But because they don’t have taxes withheld from their paychecks like traditional workers, they can use deductions to cover their expenses and lower their tax burden. But when it comes to self-employed deductions, the process certainly isn’t one-size-fits-all.
Deductible expenses are those that are seen as “ordinary and necessary” for conducting business. These expenses can range from advertising to utilities and everything in between. Remember, however, that you can only deduct the business use of the expense you’re deducting.
This list is relevant for many self-employed professionals. This may include ridesharing drivers, such as Uber or Lyft drivers, who claim large mileage deductions, or writers who might take the home office deduction as part of a quiet refuge from the corporate scene. These deductions can also apply to designers, housekeepers, photographers, construction workers, consultants or any other professionals who work for themselves.
Some tax deductions may not apply to your profession, but you might be surprised by the number that do. When you’re ready to file, you’ll list the majority of your deductions in Part II of your Schedule C (Form 1040). If you have less than $5,000 in claims, you may be able to use Schedule C-EZ. Whichever you choose, both are due April 15, along with your annual tax return.
(NOTE: If April 15 falls on a weekend or holiday, it is observed the following Monday. In 2016, this means your taxes aren’t due until April 18. In Massachusetts and Maine, the delayed celebration of Patriot’s Day further moves the tax deadline to April 19.)
Here is a list of common expenses that are ordinary and necessary for many self-employed individuals. Note that all of the lines specified are for Schedule C only, with two exceptions noted below.
|Advertising (Line 8)||Any materials for marketing your business (e.g. flyers, signage, ads, branded promo items, events or trade shows) and the cost of developing those (e.g. agency or designer costs).||Office holiday parties, gifts (e.g. books) that aren’t branded (use “Other Expenses”)|
|Business Insurance (Line 15)||Insurance intended to protect your business (e.g. fire, theft, flood, property, malpractice, errors and omission, general liability, malpractice, workers’ compensation).||Health insurance, auto insurance (use “Car Expenses” or Add Mileage), disability insurance|
|Car Expenses (Line 9)||The business portion of your actual car expenses (e.g. gas, insurance, registration, repairs and maintenance) or public transit expenses (e.g. buses) if you use local transportation.||Expenses (other than Parking/Tolls) if you use the standard mileage rate (use Add Mileage)|
|Depreciation and Section 179 (Line 13)||Depreciation expense on business assets (e.g. computers, office equipment, tools, furniture, cars). Note: The IRS requires you to use Form 4562 to claim these deductions.||Car depreciation if using the standard mileage rate (use Add Mileage)|
|Home Office Deduction (Line 30)||Expenses related to a home office (e.g. business portion of rent, utilities, repairs, insurance, mortgage interest). You’ll need to fill out a Form 8829, unless you use the simplified method.||Expenses if you use the simplified method (it includes all home office expenses)|
|Meals / Entertainment (Line 24b)||Meals or entertainment that you had with a client and during which you engaged in business discussions, or those incurred while traveling on an out-of-town business trip.||Meals for yourself (e.g. on lunch breaks); dues for athletic clubs|
|Office Expenses (Line 18)||Office expenses (e.g. cleaning services for office, general office maintenance) that don’t have a separate category.||Home office costs (use “Home Office”), rent (use “Rent”), utilities (use “Utilities”)|
|Supplies (Line 22)||Any supplies that you use and replace (e.g. cleaning supplies if you clean homes, office supplies like pens or printer ink, hot/cold bags if you do delivery).||Office decorations and some other office expenses (use “Office Expenses”)|
|Travel (Line 24a)||Travel costs related to business trips (e.g. lodging, airfare or rental cars, local transportation). The travel must be overnight, away from your residence and primarily for business.||Personal costs while traveling (e.g. dinner with a friend), meals while traveling (use “Meals”)|
|Other Expenses (Line 27a)||Any other business expenses that are ordinary and necessary (e.g. education to improve skills for your job, banking fees, association dues, business gifts, industry magazines).||Expenses with their own separate categories, expenses that aren’t ordinary and necessary|
Less Common Expenses for the Self-Employed
You might encounter some of these expenses in your line of work, but they’re generally less common.
|Commissions and Fees (Line 10)||Commissions/fees paid to nonemployees to generate revenue (e.g. agent fees). Many companies (e.g. Uber, Airbnb) remove their cut before paying you, so don’t include those.||City license fees (use “Taxes/Licenses”), commissions paid to employees (use “Wages”)|
|Contract Labor (Line 11)||Any payments made to independent contractors (e.g. a contracted web developer).||Wages paid to employees (use “Wages”), lawyer/professional fees (use “Legal Services”)|
|Depletion (Line 12)||If you’re in the business of mining natural resources (e.g. oil wells, natural gas, logging), you can write off the use of those resources. (We suggest getting an accountant if this applies.)||Gas for driving (use “Car Expenses” or Add Mileage), home/office utilities (use “Utilities”)|
|Employee Benefit Programs (Line 14)||Costs related to benefits you provide your employees (e.g. health or life insurance, education assistance, accident or liability insurance).||Your own health/retirement benefits (deductible on Form 1040 Line 28 and 29)|
|Employee Wages (Line 26)||Wages paid to employees (e.g. salaries, commissions, bonuses).||Employee benefits (use “Employee Benefits”); payments to yourself|
|Interest (mortgage) (Line 16a)||Interest paid on a mortgage for property used for business, other than your primary home. You may receive a Form 1098 from the lender if you pay mortgage interest during the year.||Interest on primary home (use “Home Office Deduction” and Form 8829 if used in business)|
|Interest (car, other) (Line 16b)||Other types of interest (e.g. credit cards, business lines of credit, interest on car payments). You can only write off the portion related to business, not the portion related to personal use.||Interest on personal loans, home office mortgage interest (use “Home Office Deduction”)|
|Legal / Professional Services (Line 17)||Professional fees related to your business (e.g. attorneys, tax preparers, accountants, other professionals).||Services provided by your employees (use “Employee Wages”)|
|Pension Plans (Line 19)||Contributions you make to your employees’ retirement plans (e.g. 401(k), Keogh plans, profit-sharing plans).||Contributions made to your own plan (use Form 1040 Line 28)|
|Rent or Lease (vehicles, equipment) (Line 20a)||Rent or lease payments on business property not owned by you (e.g. machines, equipment, vehicles).||Car lease payments if you use the standard mileage rate (use Add Mileage)|
|Rent or Lease (other business property) (Line 20b)||Rent or lease payments on items that aren’t vehicles or equipment (e.g. office or land rent), including any government taxes on those items.||Rent for home office (use “Home Office”), rent for trade show booths (use “Advertising”)|
|Repairs and Maintenance (Line 21)||Repairs or maintenance on business machines, equipment or offices (e.g. repainting office, fixing computer/laptop, replacing worn parts on equipment).||Car-related repairs (use “Car Expenses”), significant improvements (use “Depreciation”)|
|Taxes/Licenses (Line 23)||Various business taxes (e.g. your share of FICA if you have employees) or licenses (e.g. state or local licenses, or licenses required for your business type).||Self-employment tax or income tax (see section below)|
|Utilities (Line 25)||Utilities related to your office (e.g. electric, gas, garbage, water).||Utilities for your house (use “Home Office”)|
Health Insurance Deduction (Line 29 of Form 1040)
You can deduct the costs of your personal health insurance premiums as a self-employed person as long as you meet certain criteria:
- Your business is claiming a profit. If your business claims a loss for the tax year, you can’t claim this deduction.
- You were not eligible to enroll in an employer’s health plan. This also includes your spouse’s plan. If you were eligible to enroll in one and chose not to, you cannot claim this deduction.
- You can only claim premiums paid for the months when you were not eligible for an employer’s health plan.
Self-Employed Contributions Act (SECA) Tax Deduction (Line 27 on Form 1040)
If you’re a traditional employee, your Federal Insurance Contributions Act tax burden, known as FICA, is split between you and your employer. If you’re self-employed, you’re responsible for paying your own share of those Social Security and Medicare contributions, collectively known as SECA.
But fear not! You too can be taxed just like your traditionally employed peers by claiming an SECA deduction on Line 27 of Form 1040. You will compute this amount as part of Schedule SE.
While it may seem like a frustrating and time-consuming process, tracking your expenses and claiming them as deductions can save you a good amount of money when it comes time to file taxes. You can also save time and relieve some stress by using financial software like QuickBooks Self-Employed to track expenses throughout the year and automatically classify them as deductions, but it’s also smart to keep this list handy to ensure you’re on the right track.
For more tax-time tips, check out our guide to taxes for the self-employed. For other expenses that may qualify for a personal deduction, see our article on Schedule A deductions. And to see a list of common expenses for your profession, see our guides below: