There are numerous tax write-offs for self-employed professionals that individuals can claim to save thousands of dollars.
Here are 18 tax write-offs you should claim as a small business owner:
- Qualified business income tax deduction (QBID)
- Self-employment tax deduction
- Home office or work space tax deduction
- Depreciation deduction
- Internet and phone expenses
- Health insurance premiums
- Business Insurance
- Vehicle use and mileage
- Savings Incentive Match PLan for Employees individual retirement account (SIMPLE IRA) deduction contributions
- Continuing education and seminars
- Travel expense
- Meals expense
- Rental expense
- Startup costs
- Business interest expense
- Business supplies and service
- Contract labor
- Employee wages and payroll taxes
One of the most significant deductions your business may be eligible for is the QBID, which lets you reduce your QBI by 20%. This deduction ultimately reduces the amount of business income exposed to taxes.
For this deduction, QBI is the net amount of qualified income, gain, deduction, and loss from any qualified trade or business, including income from partnerships, S corporations (S-corps), sole proprietorships, and certain trusts. If your entity qualifies, you can claim this deduction annually using Form 8995 or Form 8995-A.
Depending on a combination of your income, filing status, and the annual limit, you may qualify for either a full or a partial deduction.
Let’s look at the income thresholds for 2023:
- All taxpayers with taxable income of $182,100 or less ($364,200 for married filing jointly, or MFJ) can deduct 20% of QBI as a QBID regardless of if they are a specified service trade or business (SSTB) and if they paid wages or owned assets.
- Those with taxable income between $182,100 and $232,100 ($364,200 and $464,200 MFJ) qualify for a reduced QBID based on taxable income, wages paid, and assets owned,
- Those with taxable income over $220,050 ($440,100 MFJ) do not qualify for any QBID
An SSTB is any trade or business providing services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and similar businesses. Engineers and architects are not considered SSTBs.
- Non-SSTBs with taxable income over $182,100 ($364,200 MFJ) receive a QBID, but it might be limited based on wages paid and assets owned
If your taxable income exceeds the annual threshold, calculating QBID can be trickier since it’s subject to limits based on the Form W-2 wages of a trade or business or a combination of the Form W-2 wages and the unadjusted basis immediately after acquisition (UBIA) of qualified property.
2. Self-employment Tax Deduction
The self-employment tax consists of the Social Security and Medicare tax that self-employed workers pay.
Similar to the 15.3% FICA tax employers pay (half is deducted from an employee’s paycheck, and the business pays the other half), a self-employed taxpayer is responsible for paying the entire tax on their net income. Self-employed taxpayers can deduct half of their self-employment tax paid on IRS Form 1040 (Schedule 1) Line 15.
3. Home Office or Workspace Deduction
You may use a portion of your home to run your business. If you do, then the bills for utilities, security, or repairs incurred during the normal course of business operations should be recognized as a home office business expense. You can write these off regardless of whether you’re a homeowner or a renter, but you must separate your business expenses from personal expenses.
You have to meet one of the following requirements to qualify for the home office tax deduction:
- Use the home office exclusively and regularly as the principal place of business
- Use the home exclusively and regularly to meet or deal with patients, clients, or customers in the normal course of your trade or business
- Use a separate structure like a studio, workshop, or garage that isn’t attached to the home to operate your trade or business; you must also use it regularly and exclusively
- Use the space regularly for storage use
- Use the residence as a daycare facility
While there is no requirement to physically mark the space you use with a permanent partition, using an area for both business and personal reasons will disqualify you from claiming the deduction as the home office must be used exclusively for business.
However, if you are qualified, then you can claim the deduction using the regular expense method or the simplified method.
- The regular method, in general, allows you to fully deduct the expenses you incur in the business portion of your home, plus allocate the indirect total costs of the home, such as mortgage interest, taxes, and depreciation, based on the percentage of the floor space used for business. This method generally leads to a higher deduction.
- The simplified method allows you to deduct $5 per square foot for business use of the home, and the maximum size for this option is 300 square feet. This will enable you to calculate your deduction without keeping track of expenses. While this deduction is simpler to calculate, it often results in a smaller deduction—especially if you are paying mortgage interest or rent on your home.
There is an exception to the exclusive use rule for in-home daycare providers. If you use space in your home regularly for a daycare service, you can claim a deduction for that part of your home even if you use the same area for nonbusiness purposes.
4. Depreciation Expense Deduction
You can claim depreciation on property that will be used in your business for more than one year. Depreciation in accounting and bookkeeping is the process of allocating the cost of a fixed asset over the useful life of the asset. The useful life of assets for tax purposes are set by the IRS and referred to as the modified accelerated cost recovery system (MACRS) life.
To qualify for a deduction, the depreciated property should be:
- Used exclusively by the business
- Purchased with the intent to produce long-term income
- Tangible and measurable
When you depreciate your assets, you will most likely use MACRS depreciation. With it, you can claim a higher tax deduction in the earlier years and a smaller deduction in the subsequent years.
To calculate depreciation using MACRS, we recommend using tax software or letting your tax pro do MACRS depreciation calculations for you. However, it’s still good for you to understand the basics of MACRS depreciation.
Tom purchased a five-year business property valued at $400,000. Tom wants to know how much depreciation he could claim over the next several years. To figure out his depreciation deduction, he used the normal MACRS rules.
Sample MACRS Schedule
MACRS Depreciation Deduction
There are two alternatives currently available that allow you to write off assets immediately rather than depreciating them.
- Section 179 allows taxpayers to deduct all or a portion of the cost of equipment in the tax year it was placed in service. The maximum section 179 deduction for 2023 is the lesser of $1,160,000 or taxable income.
- Bonus depreciation is similar to section 179 and allows an 80% deduction for equipment purchased during the 2023 tax year with no ceiling on the maximum deduction.
5. Internet & Phone Expenses
Your phone and internet service may also be deductible expenses. Unlike other utilities, this expense item is easier to classify because all details are itemized on your phone bill. However, you must carefully review phone bills before including them as a self-employed deduction.
The general rule for telephone expense deductions are:
- Charges for business long-distance phone calls on the personal landline are deductible expenses if separately stated on the phone bill.
- Cost of a second line in the home used exclusively for business is deductible.
- Internet bills can be allocated between business and personal based on estimated usage.
- Cost of a cellphone can be allocated between business and personal. For example, if you use your cellphone 40% of the time for business use, you can deduct 40% of the cost.
- Basic local telephone service charges, including taxes, for the first telephone landline in your home is a nondeductible personal expense regardless of if you use the landline for business.
6. Health Insurance Premiums
You can deduct the cost of health insurance premiums for yourself, your spouse, and your dependents.
Before claiming the deduction, here are some things you need to know:
- You must be ineligible to enroll in an employer’s health plan or your spouse’s employer health plan.
- Health insurance deductions include premiums for medical, dental, vision, and long-term and short-term care.
- Although the general rule is to claim the total premium paid, this is limited by the income your business earns during the tax year.
Self-employed health insurance deductions reduce your income tax but not your self-employment tax. You should report the amount on Part II, Line 17, of IRS Form 1040 (Schedule 1).
7. Business Insurance
Business insurance refers to any policy you purchase to protect your business. The most common business insurance protects companies from casualty, liability, and professional negligence, and the costs are deductible.
The following are some of the types of insurance with deductible premiums:
- Property insurance, casualty insurance, and general liability insurance
- Malpractice insurance that covers personal liability for professional negligence resulting in injury or damage
- Liability insurance
- Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause
- Credit insurance that covers losses from a business; bad debts
- Group hospital and medical insurance for employees
- Workers’ compensation
- Employee life insurance
- Contributions to a state unemployment insurance
8. Vehicle Use & Mileage
You can generally deduct the cost of using your vehicle to visit clients, go to and from business meetings, commute from one work location to another, and drive from your home to a temporary workplace. You can claim this deduction using either the standard mileage rate or actual expense method.
Driving to and from your home and permanent work location is commuting and must be classified as personal miles.
- As the name suggests, the actual expense method allows you to deduct expenses you incur from using your vehicle for business purposes. This method is very burdensome because you must track all of your vehicle expenses—both business and personal—for the entire year. You then allocate the total annual expenses by using the percentage of miles driven during the year for business.
Actual expenses you should track for the year include:
- Auto repairs
- Car insurance
- Registration and fees
- You may use the standard mileage rate rather than figure your actual expenses. For 2023, the standard mileage rate is 65.5 cents per mile. To claim this deduction, you must multiply the total number of miles you drove during the year for business by the standard mileage rate. For example, if you had 1,000 business miles, your deductible would be $655 (0.655 × 1,000).
9. SIMPLE IRA Retirement Plan Contributions
You can also claim a tax deduction for your retirement plan contributions. One of the most widely used retirement plans are SIMPLE IRAs.
You may contribute up to $15,500 in 2023. If you are 50 or over, you can make a catch-up contribution of an additional $3,500 in 2023. However, your contribution is limited to self-employment income from the business sponsoring the SIMPLE IRA plan.
This contribution to your own SIMPLE IRA is not a business expense, but rather deductible on IRS Form 1040 (Schedule 1), Line 16.
In addition to your own SIMPLE IRA contributions, you can deduct contributions you make to any employee’s SIMPLE IRA. Generally, you must match the first 3% of elective deferrals that any employees make to their SIMPLE IRAs.
The deduction for your matching employee contribution is deducted as a business expense on Schedule C.
Retirement Savings Contributions Credit
As a self-employed individual, if you are enrolled in and contribute to your retirement plan you may qualify for the retirement savings contribution credit. The maximum contribution eligible for the credit is $2,000 ($4,000 if MFJ). The amount of the credit is 50%, 20%, or 10% of your eligible contribution, depending on your adjusted gross income (AGI) and filing status.
2023 Savers Credit Phase-out Ranges
Married Filing Joint AGI
Head of Household AGI
All Other Filers AGI
$43,500 or less
$32,625 or less
$21,750 or less
$43,501 to $47,500
$32,626 to $35,625
$21,751 to $23,750
$47,501 to $73,000
$35,626 to $54,750
$23,751 to $36,500
10. Continuing Education & Seminars
You can deduct qualifying work-related education expenses as a business expense on Schedule C. Other costs related to work-related education, such as auto expenses, travel, or meals, can also be treated as business expenses.
To qualify, the education expense should meet the following criteria:
- The education maintains or improves skills needed in your present work.
- The education is not for the purpose of meeting the minimum educational requirements of your present trade or business. For instance, education to meet the requirements to become a certified public accountant (CPA) is not eligible for an accountant working at a CPA firm.
- The education is not part of a program of study that will qualify you for a new trade or business. For instance, education to move between the following jobs would be ineligible:
- Medical assistant to nurse
- Paralegal to lawyer
- Dental assistant to dentist
- Construction worker to engineer
11. Travel Expenses
Travel expenses are the ordinary and necessary expenses of traveling away from home for a period long enough to require rest, which usually means overnight. Your travel must be expected to last less than one year and must be temporary instead of a permanent or open-ended relocation.
Here are the guidelines you must consider when deducting travel expenses:
- A defined, specific business purpose is identified before the travel, such as finding new customers, meeting with clients, or learning new skills directly related to your business.
- Business activities must require the self-employed to be away from the general area of their tax home.
- The time away from the tax home is substantially longer than an ordinary day’s work and you require rest.
- Expenses must be ordinary, necessary, and reasonable.
The tax home is assigned as the entire general area or vicinity of one’s primary place of business. This is regardless of the location of your personal or family’s home.
Assuming your trip qualifies as business travel, the following expenses are deductible:
- Round-trip transportation to your destination whether by airplane, train, bus, or your personal car (if you’re riding free as a result of a frequent traveler or similar program, your cost is $0)
- Local transportation at your destination including the use of your personal vehicle if you drove there
- Shipping of baggage, and sample or display material to your destination
- Meals and lodging including monthly rentals for longer trips
- Dry cleaning and laundry
- Business calls while on your business trip
- Tips you pay for services related to any of these expenses
- Other similar ordinary and necessary expenses related to your business travel
- Travel to and from a domestic location where there is a mixture of business and pleasure is either completely deductible or completely nondeductible, based on the primary purpose of the trip (if the primary purpose is business, then the travel to and from the location is 100% deductible; however, expenses incurred at the destination must still be allocated between personal and business)
Travel expenses for business are 100% deductible, except for meals, which are limited to 50%. Self-employed professionals can list their travel expenses deductions on IRS Form 1040 (Schedule C).
12. Meals Expense
You can generally deduct 50% of the costs of your business-related meals. Taxes and tips paid on meals are also deductible, but the lunch you eat alone in your office is not.
Meals are generally business related if:
- A customer is present and business is discussed
- The meal is provided at the work location for the benefit of the employer, e.g., to allow employees to stay and work late
- The meal is served at company parties
For more information, read our guide on claiming the meals and entertainment deduction.
13. Rental Expense
Rental expense deductions are allowed if you pay rent for the space used to run the business. Rent paid for your home that includes a home office should not be shown as rent expense, but rather as part of the home office deduction discussed above.
If your business leases equipment, then you can deduct your rental payments as long as you are using the leased property in your business. If you lease a vehicle, then the expense must be shown as vehicle expense and calculated using either the standard mileage rate or actual method discussed above.
14. Startup Costs
Startup costs incurred before your first day of business are not deductible as regular business expenses. However, you can deduct up to $5,000 of startup costs in your first year of business. You can deduct the remaining amount in equal installments, through amortization, over 180 months, beginning with the month the business opened.
We have a list of startup costs that are tax-deductible, but here are a few:
- Investigation expenses that relate to business conditions generally and those relating to a specific business, such as market or product research, to determine the feasibility of starting a particular type of business
- Costs of checking out the various factors involved in site selection
- Costs of creating a business include advertising, wages and salaries, professional and consultant fees
The election to amortize startup costs must be made on the tax return for your first year of business. If it’s not elected, the costs will be capitalized and never be deducted.
To claim startup cost deductions, show the amount on Part VI of IRS Form 4562, Depreciation and Amortization, in the first year. Afterward, you can carry over your amortization amount to Schedule C as an “other” expense.
15. Business Interest Expense
Business interest expenses from loans directly related to the business are deductible. Even if you use personal property to secure the loan, you can deduct your interest if you use the proceeds to operate your business.
To qualify for this deduction, you must ensure that there is a true debtor-creditor relationship, meaning the lender intends to be paid and you (the borrower) are legally liable for the debt in question. If the business debt is shared among partners, then you should only factor in your portion of the business debt when computing interest to write off.
Credit card interest is not tax deductible when you incur the interest for personal purchases, but when the interest applies to business purchases, it is deductible. Self-employed taxpayers must show these expenses on IRS Form 1040 (Schedule C), Line 16.
16. Business Supplies & Services
Business supplies and services are expenses you incur to run your business, including small items like print paper or more substantial purchases like advertising fees. They may be partially or fully deductible depending on write-off limitations within the tax code and whether or not you only use them for business.
Some of the more common deductible expenses for business supplies and services include:
- Website maintenance: Self-employed persons can deduct costs related to their business websites, including domain fees, web design, web building, and maintenance.
- Publication, dues, and subscriptions: The cost of specialized magazines, journals, and books directly related to your business is tax deductible.
- Membership in professional or industry associations: Any membership dues paid to associations or professional organizations that relate directly to one’s business are fully deductible.
- Office supplies: As long as office supplies are used for the sole purpose of running a business, this is fully deductible.
- Advertising and marketing: Any advertising and promotional costs, such as flyers, web advertisements, and business cards, are fully deductible.
- Professional services for your business: Bookkeeping, legal fees, inspection fees, and even tax preparation costs that are attributed can be deducted.
- Utility expenses: Utility expenses for a business building are deductible. Utilities for a home office must be reported as home office expenses and calculated using the rules discussed above.
Maintaining records of these expenses is important when claiming deductions. Scan receipts into the computer and upload them to your accounting software as often as possible. Although the IRS only requires receipts on expenses that exceed $75, this practice will correct errors and help you respond effectively to any questions from the IRS.
17. Contract Labor
Payments that you make to independent contractors are deductible as a business expense. When you hire an independent contractor and pay them for their services, you can generally deduct those payments as a business expense, reducing your taxable income.
To ensure proper deduction of payments to independent contractors, ensure that the following applies:
- Business relationship: The individual you hire must be classified as an independent contractor, not an employee. Independent contractors typically have control over how they perform their work and are responsible for the success or failure of their own business.
- Contractor agreement: Have a written contract or agreement in place that clearly establishes the independent contractor relationship exists. This agreement should state the terms and conditions of the work, including the scope, services to be provided, and payment terms.
- Form 1099-NEC: If you pay an independent contractor $600 or more in a tax year, you generally need to provide them with a Form 1099-NEC, which reports the payments made to them. You must also provide a copy of Form 1099-NEC to the IRS.
18. Employee Wages & Payroll Taxes
As a business owner, the IRS allows you to claim deductions for wages you pay employees. In addition to the wages paid, you can also claim a tax deduction for payroll taxes.
As an employer, you are responsible for withholding federal income tax, Social Security tax, and Medicare tax from your employees’ wages. The withheld taxes are deductible as wage expense and the employer’s portion of Social Security and Medicare taxes is deductible as payroll taxes. Both items are business expenses deducted on IRS Form 1040 (Schedule C).
Keeping track of business expenses you can deduct at tax time can be challenging, but the potential savings is worth it. The tax code can change often, though, so you must check for updates regularly—some deductions may be eliminated or reduced, and new ones may be added. As a best practice, save all financial records from any expenses that may be eligible for the tax write-offs for self-employed, such as internet bills, mileage, and meals.