16 Self-Employment Tax Deductions To Claim

A List of Tax Deductions for Self-Employed Workers

Freelancer working on a computer in a home office

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There are pros and cons to being self-employed when it comes to paying taxes. The main con is that no money is automatically withheld from your paycheck and you’re required to calculate and make estimated tax payments each quarter. The main pro is that you can deduct all kinds of expenses that you wouldn’t be able to deduct as a salaried employee who receives a W-2.

Each of the sections below will detail a common expense that self-employed individuals can use to reduce their taxable income and, in turn, their income and self-employment taxes.

Key Takeaways

  • Generally speaking, normal business expenses can be deducted when you’re self-employed.
  • You should keep detailed bookkeeping records for all expenses you want to deduct come tax time.
  • Self-employment tax is used to pay both the employee and employer portion of Social Security and Medicare taxes, so make sure you factor that in.
  • Some popular tax deductions for self-employed individuals include the home-office and internet-bill deduction, retirement deductions, and business-travel deductions.

Home Office or Rent Deduction

Let’s start with the home office deduction, which may be the most misunderstood of all deductions. While you can’t deduct your entire mortgage or home-office costs, and you can’t deduct for the space you sometimes use to work at the kitchen or couch, you can get a tax deduction if you have a separate office or room designated just for your business.


The procedure that you use to deduct home-office costs will be the same as each of the following deductions. You can deduct the expenses that are used exclusively and on a regular basis for business.

How To Calculate the Home-Office Deduction

Set aside a space—hopefully a full room to be used as an office—that you classify as your home office. Use the space only for business, and use it when you’re doing business most of the time. From there, you can either use the simplified method or regular method to determine the tax deduction.

With the simplified method, multiply the square footage of the space (with a max of 300 square feet) by $5 and that’s your deduction. For example, if you use a 200-square-foot office, your deduction would be $1,000 (200 x $5 = $1,000).

With the regular method, you calculate the total costs for maintaining your household for the year—this includes mortgage interest, depreciation, and utilities—and multiply that total by the percentage of the house you’re using for the office. If your office is 200 square feet and your home is 2,000 square feet, that’s 10% of your home. If total household expenses for the year were $10,000, your deduction would be calculated like this:

10% of your home x $10,000 in home expenses = $1,000 deduction for home office

If you choose to use the regular method, keep detailed records for your cost accounting.

Deducting Rent

If you rent an office or a property to do your business, you can deduct it from your taxes. You can only deduct the amount of rent you paid that tax year on your annual taxes, and the rent you pay can’t be an “unreasonable” amount, which is when rent is higher than the market value of the office or property, according to the IRS.

Internet and Phone Bill Deductions

A portion of internet and phone bills can be deducted. Just remember the golden rule: You can only deduct what is used solely for business.

How To Calculate the Internet and Phone Bill Deduction

The best option is to have a personal phone and business phone, and to calculate how much of your monthly internet usage is devoted to your business. You can’t deduct expenses for your home phone line or your personal cellphone if you don’t use it for work; you can only deduct expenses paid for your business line.

For example, if you paid for unlimited data on a business phone plan, then used it as an internet hotspot for your work, you could write off all 12 monthly bills at the end of the year because you can clearly show that it is a business-only expense.


Any expenses used to create a website for your business can be deducted from your taxes, but only in the tax year you paid for the website. If it’s part of your business startup costs, you may have to amortize the costs.

Office Supplies Deduction

Supplies and materials can be deducted at cost as long as they’re used within the tax year. Office furniture, computers, and other long-lasting office supplies must be capitalized as an asset on the balance sheet, then deducted over time via depreciation.


All of the deductions in this article that can be considered normal operating expenses should be tracked through bookkeeping throughout the year, then reported on the Schedule C or Schedule F, depending on your business. This includes office supplies, advertising, travel, phone, insurance, and membership costs.

SEP IRA and Solo 401(k) Deductions

Simplified employee pensions (SEP) and solo 401(k) contributions are made with pretax money. For tax year 2022, you can contribute up to 25% of your earnings (up to $61,000) to a SEP or solo 401(k) plan.

Advertising and Marketing Deductions

You can’t deduct expenses that are in any way connected with politicians, such as advertising on one’s website, but pretty much all other advertising or marketing expenses for your business can be deducted.

Deductions for Education Costs

Education expenses that can be shown to maintain or improve your skill in your trade or business can be deducted. For example, taking a class to learn a new kind of coding is OK if you’re a developer, but an art class unrelated to your business can’t be deducted.

Health and Business Insurance Deductions

Business insurance such as professional or general liability is tax-deductible. Insurance on your home can be deducted using the home-office regular method described above. Deducting your health insurance premiums is a little more complicated.

You can deduct the cost of your health insurance premiums if you’re self-employed and had net profits for the tax year, which you recorded on Schedule C or Schedule F. If you were a partner in a partnership or run your business as a corporation, there may be other rules to follow first before deducting health insurance premiums.


Tax-deductible health insurance premiums can be made in either the name of the policyholder or the business.

Car and Travel Deductions

Generally speaking, you can only deduct car expenses from your taxes if you used the car for business travel. You can use the standard mileage rate or the actual-expenses method to calculate how much you can deduct. For tax year 2022, the standard mileage rate was 58.5 cents per mile between January and June, and 62.5 cents per mile between July and December.

For other business travel, the rule is that the travel must be “ordinary and necessary” for business purposes. You can’t travel to Disneyland, work at night from the hotel room, and expense the whole trip. You could travel to Anaheim for a conference that takes place Thursday, Friday, and the following Monday and go to Disneyland on the weekend, expensing the plane and hotel costs for the entire time. Make sure the majority of the time is spent on business if you’re going to write off travel.

Membership Deductions

Membership fees for pleasure, recreation, or other social purposes can’t be deducted. This means country clubs, athletics clubs, and airline clubs can’t be deducted.

Fees for trade associations, chambers of commerce, and other organizations for business leaders and entrepreneurs that charge a membership fee (and aren’t used for recreation) can be deducted.

Deducting Interest Costs From Loan and Credit Card Interest

Interest can be deducted as long as it is for a business purpose and the loan is legitimate. That means you and the lender have to have a typical debtor-creditor relationship where you are legally liable for the debt with intent to repay it.

Only interest can be deducted—not the full loan payments that also include principal. You will receive a tax form from the lender at the end of the year that shows the total amount of interest paid. The only exception to this is a line of credit or credit card funds that are used for operating expenses and immediately paid off; in that case, the operating expenses would be deducted.

Deductions for Startup Costs

Startup costs generally are required to be capitalized as an asset then amortized over time. However, you can deduct up to $5,000 of startup costs and $5,000 of organizational costs in your first year. These costs include legal fees, business creation, investigating the business, or other due diligence paid to purchase a business. Generally, startup costs are amortized over 180 months.

Qualified Business Income (QBI) Deduction

You may be able to deduct 20% of your qualified business income by filling out Form 8995. You’ll generally be able to do the tax deduction if you have taxable income that is below $170,050 (or $340,100 if married filing jointly).


To claim the QBI tax deduction, attach Form 8995 to your normal Form 1040 tax return.

How To Claim Self-Employment Tax Deductions

Most of the time, you’ll report self-employment income on Schedule C of your personal tax return. This is where business income and expenses for sole proprietors are reported. The exception to this is if your income comes from farming, in which case, you’d file on a Schedule F.  There may be other schedules and forms you’ll need to attach to your tax return, too, so check with a tax professional.

You’ll also need to fill out a Schedule SE, which is where self-employment taxes are calculated. Self-employment taxes are used to replace the employee and employer portions of FICA taxes (Social Security and Medicare taxes) that are paid for W-2 employees. Self-employment taxes are 15.3%.


Self-employment taxes were deferred at the beginning of the COVID-19 pandemic, and any amount that hasn’t been paid yet is due by the end of 2022. Payments can be made through the IRS Electronic Federal Tax Payment System (EFTPS).

Frequently Asked Questions (FAQs)

How much is the self-employment tax?

The self-employment tax rate is a total of 15.3%. You pay 12.4% on the first $147,000 of income for Social Security tax, and 2.9% for Medicare tax on your total income amount. There is an additional Medicare tax of 0.9% (pushing the total rate to 3.8%) for individuals who earn income over $200,000.

How do you pay the self-employment tax?

Payments can be made via mail or online through the IRS Electronic Federal Tax Payment System (EFTPS).

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