One of the most significant financial advantages of self-employment is the ability to deduct business expenses from your gross income before calculating taxes. Every legitimate deduction reduces your net profit, which reduces both your income tax and your self-employment tax. Understanding which expenses qualify — and how to document them properly — is one of the most valuable skills a self-employed person can develop.
The General Rule: Ordinary and Necessary
The IRS allows you to deduct expenses that are “ordinary and necessary” for your business. Ordinary means common and accepted in your trade or industry. Necessary means helpful and appropriate for your business, though not absolutely indispensable.
An accountant’s subscription to tax research software is ordinary and necessary. A photographer’s camera equipment is ordinary and necessary. A consultant’s airline ticket to visit a client is ordinary and necessary. A home baker’s flour and sugar are ordinary and necessary.
What is not deductible: personal expenses, lavish or extravagant expenses, capital expenses (which must be depreciated rather than expensed immediately, with exceptions), and expenses that are illegal or against public policy.
Vehicle and Transportation Expenses
If you use a vehicle for business, you can deduct the business-related costs. Two options exist: the standard mileage rate (70 cents per mile in 2026) or actual expenses (gas, insurance, repairs, depreciation — multiplied by the business-use percentage).
Qualifying business driving includes travel to client meetings, job sites, supply runs, and other business-related trips. Commuting from home to a regular office is never deductible. If your home is your principal place of business, travel from home to client locations is deductible.
Keep a mileage log with date, destination, business purpose, and miles driven. Mileage apps like Stride or MileIQ make this automatic.
Home Office
A dedicated home office used regularly and exclusively for business qualifies for the home office deduction. You can use the simplified method ($5 per square foot, max $1,500) or the actual expense method (business-use percentage of rent, utilities, insurance, and depreciation). The actual expense method typically yields a larger deduction.
Equipment and Supplies
Computers, printers, cameras, recording equipment, tools, machinery, and other equipment used for business are deductible. You have two options:
- Section 179 expensing: Deduct the full cost of qualifying property in the year of purchase, up to $1,160,000 in 2026.
- Bonus depreciation: Deduct a percentage of the cost in year one (60% in 2026 for most assets), with the remainder depreciated over the asset’s useful life.
- Regular depreciation: Deduct the cost over the asset’s useful life (5 years for computers, 7 years for most other equipment).
For low-cost items like office supplies, staplers, printer cartridges, and similar expenses, you simply deduct them as supplies in the year purchased.
Advertising and Marketing
All money spent promoting your business is deductible: website hosting and design, online advertising (Google Ads, Meta ads), print ads, business cards, signage, branded merchandise, and marketing software subscriptions. If you hire a photographer for business headshots or a copywriter for your website, those costs are deductible.
Professional Services
Fees paid to accountants, attorneys, consultants, and other professionals for business-related services are deductible. Your CPA’s fee for preparing your Schedule C and business tax returns qualifies. Legal fees for drafting a contract or forming a business entity qualify. Note that fees related to personal matters — a personal attorney, a financial planner for personal investments — generally do not qualify.
Business Insurance
Premiums for business-related insurance are deductible:
- General liability insurance
- Professional liability (E&O) insurance
- Business property insurance
- Workers’ compensation insurance
- Commercial auto insurance (business-use portion)
Health insurance for self-employed individuals is deductible separately (as an above-the-line deduction on Schedule 1), not on Schedule C.
Phone and Internet
The business-use portion of your cell phone bill and internet service is deductible. If you use your phone 70% for business and 30% personally, deduct 70% of your monthly bill. The same percentage applies to your home internet if you use it significantly for work.
If you have a dedicated business phone line or a second phone used only for business, you can deduct 100%.
Software and Subscriptions
Software subscriptions used for business are fully deductible: accounting software (QuickBooks, FreshBooks), project management tools (Asana, Notion), design software (Adobe Creative Cloud), CRM tools, email marketing platforms, and industry-specific software. If a subscription is partly personal and partly business, deduct only the business-use portion.
Meals and Entertainment
Business meals are 50% deductible when you are present and the meal has a clear business purpose — discussing a project with a client, meeting with a prospective partner. Keep records showing who you met with, the business purpose, and the amount. Entertainment expenses (concerts, sporting events) are generally not deductible since the 2017 tax law changes.
Travel
When you travel away from your tax home overnight for business, you can deduct transportation costs (airfare, train, rental car), lodging, meals (at 50%), and incidental expenses. The trip must be primarily for business purposes. If you extend a business trip for personal vacation days, only the business portion is deductible.
Education and Training
Courses, workshops, books, and online training that maintain or improve your skills in your current business are deductible. The education must be related to your existing work — not for entering a completely new field. A freelance writer who buys a course on copywriting can deduct it. A nurse who takes a cooking class cannot deduct it as a business expense.
Retirement Plan Contributions
Contributions to a SEP-IRA, SIMPLE IRA, or Solo 401(k) reduce your taxable income. For a SEP-IRA, you can contribute up to 25% of net self-employment income, with a maximum of $69,000 in 2026. Solo 401(k) contribution limits allow up to $23,500 in employee contributions plus up to 25% of net self-employment income as employer contributions, with a combined maximum of $69,000 (plus $7,500 catch-up if you are 50 or older).
These contributions are deducted on Schedule 1 (not Schedule C), but they significantly reduce your total tax burden.
Rent for Business Space
If you rent a studio, office, workshop, or storage space for business, the full rent is deductible. This includes co-working space memberships used for business work.
Bank Fees and Merchant Services
Business bank account fees, credit card processing fees, and other payment processing costs are deductible. Keep business accounts separate from personal accounts so these costs are easy to identify.
Bad Debts
If a client does not pay an invoice you already included in income, you may be able to deduct it as a bad debt. Cash-basis taxpayers (which most small businesses are) generally cannot take this deduction because income is not recognized until payment is received — there is no income to offset with a bad debt.
Startup Costs
New businesses can deduct up to $5,000 in startup costs in the first year. Costs exceeding $5,000 must be amortized over 180 months. Startup costs include market research, legal fees for forming the business, and costs incurred before the business opens.
Recordkeeping: The Foundation of Deductions
No documentation, no deduction. The IRS requires that you be able to substantiate every business expense you claim. Best practices:
- Keep all receipts, either physical or digital. Apps like Dext or Expensify scan and organize receipts automatically.
- Use a dedicated business bank account and credit card so transactions are easy to categorize.
- Record the business purpose of every significant expense at the time it occurs — memory fades.
- Use accounting software to categorize expenses throughout the year, not just at tax time.
Schedule C: Where It All Comes Together
Self-employed individuals report income and deductions on Schedule C (Profit or Loss from Business). Part II of Schedule C lists expense categories including advertising, car and truck expenses, commissions, insurance, legal fees, office expenses, rent, travel, utilities, and a catch-all “other expenses” line. Net profit (or loss) from Schedule C flows to your Form 1040 and is subject to both self-employment tax and income tax.
Key Takeaways
- Deductible expenses must be ordinary and necessary for your business.
- Track vehicle mileage, home office use, phone use, and other mixed expenses throughout the year.
- Equipment can often be fully expensed in the year of purchase under Section 179 or bonus depreciation.
- Keep receipts and document the business purpose of significant expenses at the time of purchase.
- Use separate business accounts to make tracking dramatically easier.