Top 15 Self-Employment Tax Deductions In 2023

This blog lists 15 self-employment deductions that will impact your tax returns. Keep them in mind before you file your taxes.
Top 15 Self-Employment Tax Deductions In 2023
Self-employed people and freelancers can avail tax deductions based on a variety of factors that impact their work such medical insurance, retirement savings, advertising or start-up costs and self-employment taxes, among others.
In this article

There are various tax deductions for freelancers, self-employed people, and business contractors that are valuable and mustn’t be missed out on. Listed below are 15 self-employment deductions that will impact your tax returns. Keep them in mind before you file your taxes.

The Home Office Deduction

Most self-employed people and freelancers work from home. Since your home is also your office, you can deduct the tax you pay on this one. 

What you can deduct: If you are living in a rented apartment or a house, then you can submit your papers and save a portion of your rent money. Some other things you can deduct include repairs and maintenance, property taxes, and other utility costs. This tax is only for those who are freelancers and those who do not have any employers and work for themselves. You can’t work from home for a big company and expect a home office deduction.

How it works: All you have to do is calculate the percentage of your home’s square footage that you use as your office space. You can’t calculate the entire space but only the space where you sit and work. Let’s say your home office takes up 10% of your home. Only 10% of your housing expenses will be counted as tax deductible. According to the IRS Publication 587, you can only deduct tax on the specific area where you sit and work. When there is a broken window near the space you work, only that will be totally deductible. 

What else can you do: Instead of complicating things, you can opt for the simplest way to calculate your tax returns. There is an option that allows you to deduct $5 per square foot of the space you use as office space. Only up to 300 square feet is allowed. You can use this 17-by-17-foot space to save your hard-earned money. 

Health Insurance

If you have purchased any kind of medical insurance policies on your own and for yourself or for any of your family members or dependents, then there are chances you may qualify for self-employment health insurance deductions.

What you can deduct: You can deduct medical and dental insurance premiums for yourself, your spouse, and your children who are below the age of 27. 

How it works: Your expenditure won’t be completely deducted and that’s why this doesn’t come under “itemized deductions”. It’s like an adjustment to your income and only a portion of your expenses can be claimed. 

What else you can do: When you pay out of your own pocket for premium medical expenses, then you can claim some of that money back. However, your deduction is strictly limited to expenses that cross 7.5% of your AGI (adjusted gross income). 

Continuing Education 

If you are planning to study and you freelance, then you can use self-employment tax deductions and to save your money on college fees.

What you can deduct: The things you can deduct for education-related purposes include tuition fees, books, supplies like pens and pencils, and transportation costs when you travel to and from classes.

How it works: You can’t just claim money on any education expenses. You have to make sure the money you are deducting has to be related to the work you are doing. If you are taking classes that don’t have anything to do with your job, then the money can’t be claimed. 

Your Car

If you are an independent contractor or a freelance photographer, then you will have to travel a lot to see the shooting locations and meet up with your clients. There are a few tax deductions that can help with your car expenses.

What you can deduct: When you travel for more than 2 miles, then $1 can be deducted. But you have to be traveling for work in order to write these off on taxes. 

How it works: When you are filing tax returns, calculate the number of miles you have driven for work-related purposes. Then, multiply that number by the IRS Standard deduction rate. That’s why it’s essential to keep track of your mileage. 

What else can you do: If that seems like a hectic task, then you can instead opt for easy options like calculating toll fees, parking fees, garage rent, or lease payments and use them to deduct some money. 

Retirement Savings

If you are a self-employed person and on the verge of getting a retirement, then there are many options you can look at in order to deduct some money. 

What you can deduct: The most common choice retired people have opted for is the solo 401(k). It’s a retirement plan for Americans to maximize their savings. This money will be used by them when they are retired and have no other means of income. 

How it works: Solo 401(k) contributors are tax deductible for those over the age of 59. 

Self-Employment Taxes as a Tax Deduction

It’s ironic, isn’t it? But yes, it’s true. You can deduct self-employment tax by working for yourself. 15.3% is the tax rate out of a self-employed person’s net income. This 15.3% tax rate is the sum of 12.4% Social Security tax plus a 2.9% Medicare tax. Furthermore, it’s important to note that self-employment tax and income tax are two separate things.

What you can deduct: Half of your self-employment tax on your income tax can be saved with the help of a self-employment tax deduction. 

How it works: Let’s say your Form Schedule SE says you owe the IRS $2,000 in self-employment taxes this year. However, when you need to pay the amount, you will be deducted only $1,000. It will be mentioned in your tax Form 1040. 

Business Insurance Premiums 

When you start protecting your business, your business will protect your taxes. 

What you can deduct: Employee accidents, employee health insurance, and business insurance premiums can be deducted.

How it works: In Schedule C, there is an area where you can deduct the insurance premiums. 

Office Supplies 

A business can’t be run without office supplies. Whenever you buy anything related to the office, you can save your money by writing them off on taxes.

What you can deduct: Paper, postage, pens, pencils, and other day-to-day items you purchase to run your business smoothly can be deducted.

How it works: You just have to mention the expenses related to office supplies during that year. It will be deducted from your tax amount.

What else you can do: You can also deduct for bigger things like laptops and computers the same year you buy them. However, the entire amount won’t be credited back to you. Only a portion of what you paid will be tax deductible.

Credit Card and Loan Interest

Keep checking your credit card statements for any possible self-employment tax deductions.

What you can deduct: If there are any interest rates accumulated on any business-related purchases, you can deduct them.

How it works: Even if you purchased items related to your business from someone else’s credit card and it has generated interest rates, you can deduct them too on taxes.

What else you can do: Business and personal credit cards are applicable for this. If you use your personal credit cards for purchasing your work-related items, you can write them off. 

Phone and Internet Expenses 

Freelancers and independent workers use their mobile phones a lot for research purposes and to talk to their clients. Make sure you keep all the receipts of your internet and phone bills to file them during the tax season.

What you can deduct: You can deduct your entire phone bill if you have kept all the receipts of internet connection and phone calls with your clients.

How it works: The IRS will reimburse you if you attach your receipts when you are submitting your tax return. Even if you don’t have a separate smartphone to talk to your clients, you can still deduct the percentage used for business calls.

Business Travels and Meals 

When you have to travel for work, you also have to eat while traveling. From your flight expenses to your hotel and food expenses, all of these expenses are deductible.

What you can deduct: Flight tickets, hotel room bills, taxi expenses, and food-related expenses. They have to be legitimate thought

How it works: If you are traveling alone, then all these will be deducted. However, if you are traveling with your children or your spouse, then you have to take care of them out of your own pocket. The money you spend on someone else can’t be deducted.

What else you can do: If you think hoarding bills and submitting each one of them is going to be a hectic task for you, then you can just use the daily allowance money on each meal and then mention that cost on your tax return. You will be deducted a flat rate when you opt for this method and it will save you some time. 

Start-up Costs 

Many self-employed people dream of starting their own businesses. If you are ready to take such a big step, then the tax of going into business can be deducted.

What you can deduct: When you start a new business, you will need to get it up and running. This doesn’t mean you can deduct the money you put into starting your own venture. You can only deduct the money you spend on advertising and marketing such as pamphlets, giving your employees salary who are in training, and when you travel to get supplies for your business. 

How it works: If your business expenses exceed $50,000, then you can deduct $5,000 from it. This is the basic organizational cost deduction done by the IRS. If you haven’t spent $50,000, then you will be able to deduct a lesser amount. 

What else you can do: Since business start-ups are treated more like an asset than a liability, you will have to spend most of the money on your own. Keep your expenses minimum and act smartly when you are starting your own venture. 

Advertising Costs

It’s a tough world for self-employed people out there. That’s why you need to advertise yourself to be recognized by the masses. Such advertising costs can be deducted from your taxes.

What can you deduct: Both offline and online advertising expenses are tax-deductible. However, if you conduct your advertisement in any political event or party, you can’t deduct that expense. 

How it works: If you want to deduct advertising costs, then there is a column in Schedule C where you can mention your expenses.

Certain Memberships 

If you are a part of any business or commerce clubs or organizations, you can write membership fees off on taxes. 

What can you deduct: If you have joined any public, business, real estate, medical, or trade organizations and associations, you can deduct them on taxes. But you can’t deduct the membership fees you put for any country clubs, social clubs, or travel-related clubs. 

How it works: The organization you have signed up for should solely be related to business. Charity events are also applicable. If there is any kind of entertainment involved, either for you or your guests, then it won’t be deducted by the IRS.

Qualified Business Income Deduction

This qualified business income deduction (QBI) is the latest addition to the tax system. If you are a self-employed person or run a small business, you can deduct a small part of your earnings on income taxes. 

What you can deduct: If your income from not just your business but also from other sources like mortgage and interest plans is $170,050, then you qualify for a 20% tax deduction. 

How it works: This is only applicable to those whose earnings are reported on their personal tax return. This is qualified even if you run a small business with another partner. 

What else you can do: If your business is doing well and you earn more than the limit, you may still qualify for deductions depending on what kind of business you are running. There are a few exceptions to this deduction and certain businesses don’t come under it.

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Simra Sadaf

Simra Sadaf

A lover of all things literature, Simra Sadaf does content writing for a living. When she is not writing, she is eating cakes, petting stray cats and walking on sunny beaches waiting for the sun to set.

This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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