10 Self-Employment Tax Deductions You Don’t Want to Miss

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Navigating the financial landscape of self-employment can be challenging, especially when it comes to taxes.

As a self-employed individual, you wear many hats, from managing your business operations to ensuring your financial health.

One of the most critical aspects of maintaining your business’s profitability is understanding and utilizing tax deductions available to you.

These deductions can significantly reduce your taxable income, saving you a substantial amount of money each year.

Sadly, too many entrepreneurs overlook the ones that could benefit them the most.

In this article, I highlight some of the most important self-employment tax deductions you shouldn’t miss.

These are the ones I use to help me lower my taxes as much as possible so I can keep more of my hard-earned money.

So whether you’re a freelancer, consultant, or small business owner, these insights will empower you to make the most of your tax filings and optimize your financial strategy.

The Self-Employment Tax Deductions That Save You The Most Money

#1. Retirement Contributions

Retirement contributions represent a significant tax deduction opportunity for self-employed individuals, offering a dual benefit of reducing taxable income while securing their financial future.

As an employee, you are aware that you can contribute money to your 401k plan and these contributions lower your taxable income.

As a business owner, you get to put this tax deduction on steroids.

Not only can you take a tax deduction as an employee, but you can also contribute as an employer.

For example, in 2024, self-employed individuals can contribute up to $69,000 in a solo 401k.

These contributions not only provide immediate tax savings but also foster long-term growth of retirement funds, ensuring financial security in later years.

You even have a handful of retirement plans to choose from, including a solo 401k, a SEP IRA, and a SIMPLE IRA.

To know which one will benefit you the most, talk to your tax accountant.

#2. Health Insurance Premiums

An often overlooked tax write-off self-employed people can take is health insurance premiums.

The self-employed health insurance deduction allows eligible individuals to deduct premiums paid for medical, dental, and long-term care insurance for themselves, their spouses, dependents, and children under 27 years of age, even if they are not dependents on the tax return.

This deduction is particularly beneficial because it is available as an “above-the-line” deduction, meaning it can be claimed whether or not the taxpayer itemizes deductions.

To qualify, you must have a net profit from your business for the year and cannot be eligible for an employer-subsidized health plan, either through your own employment or through a spouse’s job.

Seeing that healthcare costs continue to skyrocket, this deduction alone could save you thousands of dollars.

#3. Mileage Reimbursement

If you run a lawn care business or other business where you travel to clients, you can write off the miles you drive, in addition to the wear and tear on your vehicle.

This can turn out to be a significant tax write-off, assuming you drive a lot.

The IRS allows you to deduct either the actual expenses incurred or use the standard mileage rate, which is often simpler and can result in substantial savings.

For the tax year 2024, the standard mileage rate is 67 cents per mile.

To claim this deduction, you need to maintain accurate records of the miles driven for business, including the date, destination, purpose of the trip, and miles traveled.

This can include trips to meet clients, travel between different work sites, and errands related to business operations such as banking or purchasing supplies.

Commuting from home to your regular place of business is not deductible, but travel between business locations is.

For instance, if you drive 1,000 miles for business in a year, you could potentially deduct $670 (1,000 miles x .67 cents per mile).

Properly tracking these expenses is crucial; using a mileage logbook or a reliable mobile app like MileIQ can simplify the record-keeping process.

I recommend using MileIQ for a couple of reasons.

First, you can set up automatic mileage tracking, which saves you a lot of time.

Second, it keeps everything nicely organized, so when it comes time to file your taxes, it is easy to get the information you need.

And finally, it’s highly rated by other users, with over 1 million active users and over $10 billion reimbursed.

#4. Home Office Deduction

The home office deduction is a significant tax benefit for self-employed individuals who use part of their home exclusively for business purposes.

To qualify, the space must be used regularly and exclusively for conducting business activities, whether it’s a dedicated room or a clearly defined area within a larger room.

The IRS offers two methods to calculate this deduction: the simplified method and the regular method.

The simplified method allows a deduction of $5 per square foot of the home used for business, up to a maximum of 300 square feet, resulting in a maximum deduction of $1,500.

The regular method involves calculating the actual expenses of maintaining the home office, including a portion of mortgage interest, rent, utilities, insurance, repairs, and depreciation, based on the percentage of the home devoted to business use.

In most cases, you are going to get a larger deduction by going with the regular method.

Most tax accountants can easily do this for you, and if you prepare your taxes using any tax software, these programs will walk you through the process as well.

If you decide to go with the regular method, it is advised you keep detailed records of these expenses to substantiate the deduction.

While the IRS has been looking more closely at this deduction because of misuse, it should not scare you away from taking it, as long as you accurately calculate it.

#5. Internet and Phone Bills

If you use your internet connection and phone for business purposes, you can deduct a portion of these costs as a business expense, reducing your taxable income.

The IRS allows you to claim the percentage of time the internet and phone are used for business.

For example, if you use your internet connection 70% of the time for business tasks like emailing clients, managing a website, and conducting research, you can deduct 70% of your internet bill.

Similarly, if your phone is used 50% of the time for business calls, you can deduct 50% of your phone bill.

For home offices, it’s essential to maintain clear records and logs demonstrating business use to substantiate these deductions.

If you have a separate phone line or internet service dedicated solely to business, you can deduct the entire cost.

#6. Education and Training

Are you required to complete continuing education as part of your job?

Or maybe there is a new piece of equipment you need to take a safety class before you can use it.

The IRS allows the deduction of costs related to education that maintains or improves skills required in your current business or trade, or that is required by law to keep your license or status.

This includes expenses for tuition, books, supplies, lab fees, and related costs such as transportation to and from classes.

If you’re a freelance graphic designer, the cost of attending advanced design courses, purchasing design software manuals, or subscribing to industry-specific online training platforms can be deducted.

Additionally, fees for attending workshops, seminars, and conferences that directly relate to your business are also deductible.

#7. Professional Services

Did you know that professional services that are necessary and directly related to running your business are fully deductible?

This includes fees paid to accountants for tax preparation and bookkeeping, lawyers for legal advice and contracts, consultants for business strategy, and IT professionals for tech support and website maintenance.

For example, hiring an accountant to manage your financial records not only ensures accuracy and compliance with tax laws but also provides a deductible expense that reduces your overall tax liability.

Legal services, such as drafting business agreements or handling disputes, are also critical and deductible.

Similarly, if you hire a marketing consultant to help grow your business or an IT expert to set up and maintain your business systems, these costs can be deducted.

#8. Travel Expenses

Travel expenses are a valuable tax deduction for self-employed individuals, provided they are directly related to conducting business.

Deductible travel expenses include costs for transportation, lodging, meals, and incidental expenses incurred while traveling away from the primary place of business.

Transportation includes airfare, train tickets, and car rentals.

Additionally, hotel stays, tips, and even dry cleaning services during business trips can be claimed.

Meals can be deducted at 50% of the actual cost or by using the standard meal allowance set by the IRS.

To qualify for these deductions, the trip must be primarily for business purposes, and proper documentation, such as receipts and detailed records, must be maintained.

A trip that combines business with personal activities can still qualify for partial deductions if the business portion is well-documented.

The IRS does require travel expenses to be reasonable and necessary for the business, so luxury accommodations or extravagant meals beyond what is typical for business purposes may not be fully deductible.

#9. Hiring Your Children

Hiring your children can be a beneficial tax deduction strategy for self-employed individuals, providing a way to reduce taxable income while keeping earnings within the family.

The IRS allows business owners to hire their children and deduct their wages as a business expense, provided the work is legitimate and the wages are reasonable for the tasks performed.

This can include jobs such as office help, maintenance, and other age-appropriate tasks that contribute to the business.

If your child is under 18, their wages are not subject to Social Security and Medicare taxes, and the child’s income is typically taxed at a lower rate than the parent’s, potentially resulting in overall tax savings for the family.

For instance, if you pay your child $12,000 annually, this amount is deducted from your business income, reducing your taxable income by that amount.

Additionally, your child does not pay income tax on their earnings if it is under $13,850 as of 2023.

To further take advantage of this benefit, invest the maximum amount into a Roth IRA, so they can start saving for their future.

#10. Equipment and Supplies

Deducting business equipment and supplies is a crucial way to reduce your taxable income and lower your overall tax liability.

Expenses for equipment such as computers, printers, cameras, and office furniture, as well as everyday supplies like paper, pens, and ink, are all deductible as ordinary and necessary business expenses.

These deductions fall under Section 179 of the IRS tax code, which allows for the immediate expensing of certain types of property rather than depreciating them over several years.

It’s important to note that this deduction applies to both new and used equipment, provided it is used more than 50% of the time for business purposes.

Keeping meticulous records and receipts for all business-related purchases is essential to substantiate these deductions.