Overview

Self-employed individuals—including sole proprietors, independent contractors, freelancers, and many gig workers—can deduct ordinary and necessary business expenses from gross income to lower taxable income. The rules come from the IRS: an expense must be ordinary (common in your trade) and necessary (helpful and appropriate) to qualify (IRS: “Deducting Business Expenses”). See IRS guidance for details: https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses.

In my practice advising small-business owners and freelancers, I regularly see missed deductions because of poor recordkeeping or misunderstanding of the rules. This article walks through the most common deductions, what documentation the IRS expects, and practical steps to maximize legitimate tax savings.

How deductions are reported

Most single-owner self-employed taxpayers report business income and expenses on Schedule C (Form 1040). Self-employment tax is calculated on Schedule SE, and some deductions require additional forms (for example, Form 8829 for home-office expenses under the regular method). Always check the current IRS instructions for forms each year: https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center.

Common deductions and practical notes

Below are the deductions most frequently available to self-employed taxpayers, with what they cover and documentation tips.

  • Home office deduction

  • What it covers: A portion of mortgage interest, rent, utilities, repairs, homeowners insurance, and depreciation for the part of your home used exclusively and regularly for business. The IRS allows a simplified method ($5 per square foot, up to 300 sq ft) or the regular method (actual expenses allocated to the business portion). See IRS: Home Office Deduction: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction.

  • Documentation: A floor plan, square footage calculation, lease or mortgage summary, utility bills, and receipts for repairs. If using the regular method, file Form 8829.

  • Common pitfalls: The space must be used exclusively and regularly for business. Personal use or dual-purpose rooms can disqualify the deduction.

  • Vehicle expenses

  • What it covers: Business miles, parking, tolls, depreciation, fuel, repairs, and insurance. You can choose the standard mileage rate (set annually by the IRS) or actual expenses; you cannot switch freely every year if certain depreciation choices were made. The IRS posts each year’s standard mileage rate—check irs.gov for the current rate.

  • Documentation: A contemporaneous mileage log (date, purpose, start/stop odometer or miles driven) and expense receipts. Smartphone apps, spreadsheets, or a written log are acceptable evidence.

  • Supplies, equipment and software

  • What it covers: Office supplies, stationery, computers, phones, software subscriptions and licenses, and small equipment. Section 179 and bonus depreciation rules can let you expense qualifying equipment in the year of purchase rather than capitalizing and depreciating it over time (subject to limits and eligibility).

  • Documentation: Invoices, receipts, serial numbers, and proof of business use.

  • Professional services and fees

  • What it covers: Fees for accountants, attorneys, tax preparers, consultants, and outsourced services.

  • Documentation: Engagement letters, invoices, and canceled checks or bank transfers.

  • Advertising and marketing

  • What it covers: Website design and hosting, business cards, online ads, marketing services, client meals related to business development (subject to partial disallowance rules), and promotional materials.

  • Documentation: Invoices, payment records, and a short note explaining the business purpose.

  • Travel, meals, and entertainment

  • Travel: Deductible when primarily for business (airfare, lodging, rental car). Keep itineraries and receipts.

  • Meals: Generally 50% deductible when business-related (some temporary laws provided 100% deduction for certain restaurant meals in specified years—confirm the current limit). Keep receipts and note who, when, and the business purpose.

  • Health insurance premiums for self-employed people

  • What it covers: If you’re self-employed and not eligible to participate in an employer-sponsored plan (for you or your spouse), you may be able to deduct premiums you pay for medical, dental, and qualified long-term care insurance for yourself, your spouse, and dependents. This is an above-the-line deduction on Form 1040 (Schedule 1). See IRS guidance: https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-health-insurance-deduction.

  • Retirement plan contributions

  • What it covers: Contributions to SEP IRAs, Solo 401(k)s, and SIMPLE IRAs reduce taxable income and help save for retirement. The plans have different contribution limits and rules; choose based on contribution flexibility and administrative complexity. More on options for small-business owners: https://finhelp.io/glossary/retirement-savings-options-for-the-self-employed-sep-simple-and-solo-401k/.

  • Self-employment tax deduction

  • What it covers: You pay both the employee and employer portions of Social Security and Medicare through self-employment tax. You may deduct one-half of self-employment tax as an adjustment to income on Form 1040.

  • Qualified Business Income (QBI) deduction (Section 199A)

  • What it covers: Eligible pass-through business owners may be able to deduct up to 20% of qualified business income, subject to income limits, specified service trade rules, and other thresholds. The calculation and eligibility can be complex; use IRS instructions and consider a tax pro if your income is near phase-out ranges.

Recordkeeping best practices (practical checklist)

Good records both help you claim the right deductions and protect you in an audit. Keep the following for at least three years (and longer for items related to depreciation or property sales):

  • Receipts and invoices (digital copies are acceptable)
  • Bank and credit card statements
  • Contemporaneous mileage log or trip itineraries
  • Contracts, engagement letters and client invoices
  • Time logs showing hours spent on business activities (useful for home office allocation)
  • Year-end summaries and accounting reports

For a step-by-step approach to preparing your year-end tax packet, see our guide: “How to Prepare a Self-Employed Year-End Tax Packet”: https://finhelp.io/glossary/how-to-prepare-a-self-employed-year-end-tax-packet/.

How to avoid common mistakes

  • Don’t mix personal and business finances—use a separate business bank account and credit card.
  • Don’t overstate vehicle miles or home-office percentage—use contemporaneous records.
  • Beware of trying to deduct personal living expenses. If an expense has both personal and business uses, deduct only the business portion.
  • Consult your tax advisor before taking large Section 179 or depreciation moves that affect future tax years.

When to consult a tax professional

If you operate multiple businesses, have employees, or your income triggers QBI phase-outs, the tax calculations become more complex. In my practice I recommend a tax professional if you:

  • Expect to claim significant home-office, vehicle, or depreciation deductions; or
  • Want to set up a retirement plan (SEP, Solo 401(k), SIMPLE) and need help with limits and timing; or
  • Receive notices from the IRS or anticipate an audit.

For general filing rules and form references, see our detailed resource on filing as self-employed: https://finhelp.io/glossary/filing-as-self-employed-forms-deductions-and-recordkeeping/.

Sample documentation scenario

A freelance web designer buys a $2,400 laptop used 90% for client work and 10% for personal use. She documents the purchase receipt, notes business use, and uses Section 179 (or depreciation) to expense the business portion ($2,160). She also maintains a mileage log, quarterly estimated tax records, and a folder of invoices—this reduces stress at tax time and supports deductions if questioned.

Authoritative sources and where to check current rules

Because tax rates, mileage rates, and some deduction rules change year to year, always confirm current values at IRS.gov before filing.

Final tips

  • Start tracking expenses the day you become self-employed. Small receipts add up.
  • Use accounting software to categorize expenses and generate reports for Schedule C.
  • Keep a separate business account to simplify bookkeeping and strengthen your audit trail.

Professional disclaimer: This article is educational and does not constitute tax advice. Rules vary by situation and change over time—consult a licensed tax professional or CPA to apply these concepts to your circumstances.

(Links to internal resources used: Home Office Deduction: https://finhelp.io/glossary/home-office-deduction/; Filing as Self-Employed: https://finhelp.io/glossary/filing-as-self-employed-forms-deductions-and-recordkeeping/; How to Prepare a Self-Employed Year-End Tax Packet: https://finhelp.io/glossary/how-to-prepare-a-self-employed-year-end-tax-packet/.)