17 self-employed tax deductions to lower your tax bill in 2023

Filing your taxes and keeping track of W-2 employee forms can be overwhelming. But, when you’re a small business owner, the labyrinth of paperwork and potential self-employed tax deductions creates a tax situation that’s enough to give even the most laid-back freelancer heartburn.

Here, we’ll walk you through the top 17 self-employed tax deductions every business owner should be claiming and guide you through the paperwork to help you file your taxes accurately. Here’s a look at those 17 tax breaks we’ll dive into:

1. Self-employment tax
2. Vehicle use
3. Travel
4. Retirement contributions
5. Home office
6. Health Insurance
7. Startup costs
8. Meals
9. Internet and phone
10. Advertising and marketing
11. Software and subscriptions
12. Office supplies
13. Business insurance
14. Interest expenses
15. Education
16. Membership dues
17. Rent and utilities

While tax rules can be complex, self-employed professionals can deduct many business-related expenses. These expenses include advertising, utilities, and other business costs. You can also deduct the business use of your home or personal car.

You want to take advantage of all the legal tax deductions you can. This will help reduce your tax bill and ensure you maximize profits. Let's start with six most common tax deductions.

1. Self-employment tax 

• How much can you deduct: 50% of your self-employed tax liability
• Examples of what you can deduct: Social Security, Medicare tax 

If you’re self-employed, you’re responsible for paying self-employment tax. Self-employment tax is also known as Federal Insurance Contributions Act (FICA). The FICA tax amount pays for Social Security and Medicare contributions. 

The current self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. So if you make $10,000, you’ll need to pay $1,530 in self-employment tax. 

However, 50% of what you pay in self-employment tax is deductible. For example, if you pay $1,530 in self-employment tax, you will be able to reduce your taxable income by $765.

2. Vehicle use

• How much can you deduct: Percent of total vehicle expenses or the standard mileage rate
• Examples of what you can deduct: Fuel, insurance, maintenance

Do you regularly drive to meet clients or suppliers? If so, you can take advantage of the tax deductions for self-employed individuals to account for vehicle mileage or normal vehicle wear and tear. You can choose between two types of vehicle-related deductions: the standard mileage option or the actual expense option.

Standard mileage rate vs. actual use

The standard mileage rate calculation for your vehicle use deduction is: 

Standard mileage rate deduction = business miles x IRS standard mileage rate 

The current IRS standard mileage rate is $0.655 per mile. For example, say you use your personal car to drive 6,000 business miles, then your standard mileage rate deduction is: 

• Business miles * IRS standard mileage rate = Standard mileage deduction
• 6,000 miles * $0.655 = $3,930

Or you can track all your car expenses and multiply that by the amount of business-related miles you drove. The formula for the actual use deduction is: 

Actual use deduction = total vehicle expenses x (business miles / total miles) 

For example, your total car expenses were $7,000 for the year. You drove 6,000 miles for business and 4,000 for personal use for a total mileage of 10,000. The actual use deduction in this example is

• Total vehicle expenses * (business miles / total miles) =
• $7,000 * (6,000 / 10,000) =
• $7,000 * 60% = 
• $4,200 

Both ‌standard mileage and actual use methods require you to track the miles you drive for business.

3. Travel

• How much can you deduct: 100%
• Examples of what you can deduct: Plane tickets, hotels, transportation 

Other tax write-offs available to self-employed individuals are travel expense tax deductions. If you travel to visit clients or attend conferences, you may be able to deduct the cost of travel. Business travel expenses include transportation and accommodation costs. 

For example, if you are a freelancer who travels to attend networking events, you can deduct the cost of these trips. And if you are a consultant who visits clients, you can also deduct travel costs.

To be eligible for this deduction, you must be able to prove that the travel was ordinary and necessary for your business.

4. Retirement contributions

• How much can you deduct: 100%
• Examples of what you can deduct: Contributions to 401(k) plans or IRAs

If you contribute to a retirement plan for yourself, you may be able to deduct these contributions. This includes the individual retirement account (IRA), Simplified Employee Pension (SEP) plan, and 401(k) contributions. 

For example, self-employed individuals can contribute up to 25% of their earnings from their business into a SEP plan or up to $66,000 for 2023. Or with a SIMPLE IRA, you can contribute all of your net earnings, up to $15,500.

5. Home office

• How much can you deduct: Percent of total home expenses or $5 per square foot (up to $1,500)
• Examples of what you can deduct: Rent, utilities, repairs 

If you use part of your home for business purposes, you can take a deduction based on the square footage of your office. This deduction is available to those who use part of their home regularly and exclusively for business purposes.

To decide whether or not you can use the home office deduction, let’s work through the following flowchart:

After determining whether you can take the home office deduction, it’s time to figure out which method to use.

Regular method 

There are two methods to choose from—the regular and simplified methods. The regular method allows you to deduct part of your home expenses, such as rent, mortgage interest, repairs, and utilities. 

To calculate the home office deduction using the regular method:

1. Add up all your home-related expenses, such as rent and repairs. 
2. Measure the square footage of your office area. 
3. Divide your home office square footage by your total home square footage. 
4. Multiply that percentage by your total home expenses. 

For example, say your home office is 150 square feet, your home is 2,000 square feet, and your yearly home expenses are $15,000. 

Your home office deduction using the regular method is: 

• (Office square footage / total home square footage) x home expenses =
• (150 / 2,000) x $15,000 = 
• $1,125

One thing to note as well, if you do sell your home in the future, your gain may also be subject to depreciation recapture. 

The simplified method is a bit simpler. 

Simplified method

For the simplified method, you measure the square footage of your office area and multiply it by $5. 

From our above example, your home office deduction for a 200 square-foot office would be: 

• Office square footage x $5 =
• 200 x $5 =
• $750 

In our example, the regular method has a higher deduction amount, but it does take more work. Also, note that the simplified method has a $1,500 deduction limit. Even if your home office is more than 300 square feet, you can only deduct $1,500. 

6. Health Insurance

• How much can you deduct: 100%
• Examples of what you can deduct: Premium payments 

Many full-time employees receive health insurance through their employers. However, self-employed professionals must pay for their own health care out of pocket. Those monthly premiums can add up to a hefty chunk of change every month.

Self-employed individuals who meet certain criteria may be able to deduct the cost of health insurance premiums. You can deduct these premiums if your business is generating a profit and you are not eligible to enroll in an employer’s health plan.

Those are six of the must-use and most common deductions that almost all business owners can use. Now, let's take a look at some other common deductions for self-employed individuals.

7. Startup costs

• How much can you deduct? 100%, up to $5,000
• Examples of what you can deduct: Business incorporation fees, website building costs  

​​If you are just starting out, you can deduct your startup costs from your taxes. This includes things like legal and professional fees for registering as a self-employed business owner.

It is important to note that you can only deduct up to $5,000 of your startup costs from your self-employment taxes. You will need to write off any costs over the $5,000 deduction over 15 years.

8. Meals

• How much can you deduct: 50% or 100%
• Examples of what you can deduct: Meals for clients, food for company parties 

Another tax deduction available to self-employed individuals is the meal deduction. This deduction allows you to deduct the cost of meals necessary for your business. You can write off things like meals while entertaining clients.

However, the catch is that you can only deduct 50% of business meals with clients, meals for employees, and office snacks. For meals at companywide parties, you can deduct 100%.

9. Internet and phone

• How much can you deduct: 100%, or percentage of business use 
• Examples of what you can deduct: Business use of home internet or cellphone 

Small business owners—whether you consider yourself self-employed or a freelancer—who work at home, can deduct part of their internet and phone costs. If you only use your internet or phone for business purposes, you can deduct the entire bill. But if you use either for personal use, you can only deduct the business use part. 

For example, you’ll want to track your time if you use your cell phone for personal and business use. If you use your personal cell phone for business 50% of the time, you can deduct half of your cell phone bill.

10. Advertising and marketing 

• How much can you deduct: 100%
• Examples of what you can deduct: Online or social media ads, flyers, radio ads

In our increasingly connected society, self-employed people have to engage in marketing and advertising if they hope to stay competitive. If you spend money on advertising and marketing for your business, you can deduct these expenses from your taxes.

The IRS allows small business owners to deduct the cost of flyers, web advertisements, business cards, and print ads, along with other marketing expenses.

11. Software and subscriptions

• How much can you deduct: 100%
• Examples of what you can deduct: Cloud storage, self-employed accounting software

With many shoppers turning to the internet to research services and products, creating a website can be key to success. Self-employed individuals can deduct costs for their business websites, such as domain and hosting fees.  

Other software and subscription expenses you might be able to deduct include project management software and cloud storage subscriptions. Self-employed individuals can deduct the full cost of any software or subscription if it's entirely for business use.

12. Office supplies

• How much can you deduct: 100%
• Examples of what you can deduct: Pens and paper, printing supplies 

If you spend money on office supplies for your business, you can deduct part of these expenses. Typical office supplies include postage and stationery. 

Almost any repeat-purchase items you regularly use for your business can be office supplies. Such as highlighters, staplers, paper clips, dry-erase markers, and tape.

13. Business insurance

• How much can you deduct? 100%
• Examples of what you can deduct: Liability insurance, data breach insurance 

​​Any type of insurance you have for your business is tax-deductible. It might be a rule for your business to have certain types of insurance, such as liability. 

However, you can deduct insurance premiums that are helpful to your business, such as business income coverage or cybersecurity insurance. Note that premiums for life insurance are typically not tax-deductible.

14. Interest expenses

• How much can you deduct: 100%, up to 30% of adjusted taxable income
• Examples of what you can deduct: Credit card interest, business loan interest 

If you have a business credit card, you can likely deduct any interest you pay on your taxes. This also goes for business loans. For example, if you took out a loan to buy equipment for your business, any interest paid would be tax-deductible.

However, the loan or credit card charges must be for your business. Interest paid for charges or loans related to personal use is not deductible. 

Note that you can only take an interest deduction that’s up to 30% of your adjusted taxable income. For example, if your adjusted taxable income is $50,000, your interest expense deduction cannot exceed $15,000.

15. Education

• How much can you deduct? 100%
• Examples of what you can deduct: Workshops, webinars, conferences

​​As a small business owner, it’s key to find ways to stand out from your competition. To stay ahead of the pack, many self-employed individuals attend classes and educational seminars.

The cost of these expenses can help you and your business, so the IRS lets freelancers deduct professional development expenses in full. This includes things like books and webinars as well. But they cannot be for general education—they must be related to your business.

16. Membership dues

• How much can you deduct? 100%
• Examples of what you can deduct: Dues for nonprofit organizations

If you spend money on dues for professional organizations, you can use those expenses to lower your tax burden. Memberships must be for your business, however. 

For example, an accounting firm may consider the National Society of Accountants or the American Accounting Association as necessary memberships. You should keep detailed records of both your education expenses and dues.

17. Rent and utilities

• How much can you deduct? 100%
• Examples of what you can deduct: Warehouse rent, storage rent 

If you rent office space, you can deduct the rent and utilities for it. Or if you rent space for other things related to your business, such as a warehouse, storage facility, or manufacturing plant, you can deduct those as well. 

Note that you cannot deduct prepaid rent. You can only take a tax deduction for the time the property is in use during the tax year. 

For example, say you pay $12,000 for a year of rent on July 1. You can only take a rental deduction of $6,000—the six months you will use the property during that tax year. 

If you’re self-employed, you can write off such expenses as meals, marketing, software, home office, vehicle, and insurance from your taxes. Here’s a look at 17 of the best tax write-offs for self-employed individuals using our tax deductions worksheet:

Find peace of mind come tax time

Filing taxes as a small business owner and freelancer can be stressful, and the self-employed tax deductions may be confusing. However, by taking advantage of all possible deductions and understanding the requirements, you can minimize your tax burden and grow your business. That’s where a small business tax prep checklist can help. 

Use self-employed accounting software like QuickBooks to track expenses throughout the year and have it automatically post the expenses as deductions for you.