Every dollar you legitimately deduct is a dollar you don’t pay tax on — which makes deductions one of the most valuable parts of working for yourself. Yet many self-employed people overpay simply because they don’t track their expenses or don’t know what counts. The rule is simpler than it sounds: a business expense is deductible if it’s ordinary and necessary for your line of work. Here’s how to capture what you’re owed without crossing any lines.
The Golden Rule: Ordinary and Necessary
The IRS allows you to deduct expenses that are ordinary (common in your trade) and necessary (helpful and appropriate for the business). It doesn’t have to be indispensable — just a reasonable cost of doing what you do. A graphic designer deducting design software is ordinary and necessary; deducting a family vacation is neither. When in doubt, ask whether the expense exists because of the business.
Common Deductions for the Self-Employed
- Home office — a share of housing costs if you use space regularly and exclusively for business
- Vehicle and mileage — business driving, either by the standard mileage rate or actual costs (not your commute)
- Supplies and equipment — tools, materials, computers, software, and subscriptions used for work
- Phone and internet — the business-use portion of your bills
- Professional services — fees you pay an accountant, attorney, or contractor
- Marketing and advertising — your website, business cards, ads, and hosting
- Education — courses and training that maintain or improve skills for your current business
- Health insurance — the self-employed health insurance deduction, if you qualify
- Half of self-employment tax — you can deduct the employer-equivalent portion
- Retirement contributions — SEP-IRA or Solo 401(k) contributions lower your taxable income
The Tricky Ones
- Meals — business meals with a client or for travel are generally 50% deductible; keep a note of who and why. Entertainment is no longer deductible
- Mixed-use items — a phone or car used for both business and personal must be split by the business-use percentage
- Travel — lodging and transportation for genuine business trips are deductible; tacking a vacation onto a work trip is not
- Clothing — only deductible if it’s a required uniform or protective gear, not regular clothes you could wear anywhere
Track Everything — Or Lose It
A deduction you can’t document is a deduction you can’t safely claim. Keep receipts, log business mileage, and run expenses through a dedicated business account and card so the record builds itself. Bookkeeping software or even a simple spreadsheet updated monthly turns tax season from a scramble into a summary. If you’re ever audited, the burden is on you to prove the expense was real and business-related.
Commonly Missed Deductions
Many self-employed people leave money on the table simply because they don’t realize an expense is deductible. As long as a cost is ordinary (normal in your line of work) and necessary (helpful and appropriate), it’s generally deductible. These are the ones most often overlooked:
- Home office — a portion of rent or mortgage interest, utilities, and insurance for the space used regularly and exclusively for business.
- Vehicle and mileage — business miles at the standard mileage rate, or a share of actual vehicle costs.
- Startup costs — up to a set amount of what you spent getting the business going before it opened.
- Self-employed health insurance — premiums for you and your family, deducted above the line.
- Retirement contributions — to a SEP-IRA or solo 401(k), which lower taxable income while building your own savings.
- Business meals — generally 50% of the cost when there’s a clear business purpose.
- Software, subscriptions, and professional fees — including the fee you pay your accountant, which is itself deductible.
The rule that ties them together: keep a record. You can only defend a deduction you can document, so save receipts (a clear photo is fine) and note the business purpose.
Frequently Asked Questions
What records do I need to keep for deductions?
Receipts, invoices, bank and card statements, and a note of the business purpose. For vehicle and home-office deductions, keep a mileage log and the square footage. The general guidance is to retain records for at least three years after filing.
Can I deduct my car?
You can deduct the business-use portion — either the standard mileage rate per business mile, or a share of your actual costs (gas, insurance, maintenance, depreciation). You can’t deduct personal commuting, and you have to keep a log to support the business miles.
Is the home office deduction an audit red flag?
It used to have that reputation, but it’s a legitimate deduction when you use the space regularly and exclusively for business. Claim it if you qualify — just keep clean records of the space and the related costs.
The Bottom Line
Deductions are how the self-employed keep more of what they earn — but only the ones you track and can justify as ordinary and necessary. Capture the common write-offs (home office, mileage, supplies, software, professional fees, retirement contributions), handle the tricky ones carefully, and keep clean records all year. When a deduction is large or unclear, a quick check with a CPA usually pays for itself.
Further Reading
This article is educational only and is not legal, tax, or financial advice. Business, tax, and lending rules vary by state and situation and change over time. Consult a qualified attorney, CPA, or financial professional before making decisions about your specific business.