Self-employed workers pay both the employee and employer sides of payroll tax — a total of 15.3% on net earnings. But the tax code offers an unusually long list of deductions that can significantly reduce your taxable income. Knowing which deductions apply to your business and keeping good records to support them is one of the most direct ways to reduce your tax bill legally.
The Self-Employment Tax Deduction
When you are self-employed, you pay self-employment tax (SE tax) of 15.3% on your net earnings — 12.4% for Social Security and 2.9% for Medicare. Employers who hire W-2 employees pay half of this tax on behalf of their employees. When you are self-employed, you pay both halves.
The good news: you can deduct 50% of your self-employment tax from your gross income. This deduction is taken on Schedule 1, not Schedule C, so it applies regardless of whether you itemize or take the standard deduction.
Home Office Deduction
If you use part of your home exclusively and regularly for business, you can deduct the business portion of home expenses. There are two methods:
- Simplified method: Deduct $5 per square foot of dedicated office space, up to 300 square feet ($1,500 maximum). No depreciation recapture when you sell your home.
- Regular method: Calculate the percentage of your home used for business (e.g., a 200 sq ft office in a 2,000 sq ft home = 10%). Deduct that percentage of rent or mortgage interest, utilities, insurance, and home depreciation.
The “exclusive use” requirement is strict — a room that doubles as a guest bedroom does not qualify. A dedicated room used only for business does qualify, even if it is not a separate office with a door.
Vehicle and Mileage Deductions
If you use your car for business, you can deduct the business portion of vehicle costs using one of two methods:
- Standard mileage rate: For 2026, the IRS rate is 70 cents per mile for business use (verify current year rate at IRS.gov). Track every business mile with a mileage log — date, destination, and business purpose.
- Actual expense method: Deduct the business percentage of your actual car expenses — gas, insurance, maintenance, depreciation. Requires more recordkeeping but may yield a larger deduction for high-cost or heavily-used vehicles.
Commuting from home to a regular office is not deductible. Travel from your home office to client sites is deductible.
Health Insurance Premiums
Self-employed workers can deduct 100% of health insurance premiums paid for themselves, their spouse, and their dependents. This deduction is taken on Schedule 1 and reduces adjusted gross income — not just taxable income — which means it also reduces self-employment tax in some calculations.
The deduction is limited to the net profit from your business. You cannot deduct more than your self-employment income, and you cannot take the deduction for any month in which you were eligible for employer-subsidized health coverage (for example, through a spouse’s job).
Retirement Plan Contributions
Contributions to a Solo 401(k) or SEP IRA are fully deductible as a business expense. Contributing $23,500 to a Solo 401(k) reduces your taxable income by $23,500. At a combined federal and state marginal rate of 35%, that is $8,225 in taxes saved. Self-employed workers who maximize retirement contributions often eliminate a significant portion of their federal income tax liability.
Business Equipment and the Section 179 Deduction
Normally, business equipment must be depreciated over multiple years. The Section 179 deduction allows you to deduct the full cost of qualifying equipment in the year it is purchased, up to $1,220,000 in 2026 (subject to annual IRS adjustments). Qualifying equipment includes computers, office furniture, machinery, and certain software.
Bonus depreciation (currently being phased down from 100%) may also allow you to immediately deduct a percentage of new equipment costs. Consult your tax professional for the current year rules as bonus depreciation rates change annually.
Business Travel and Meals
Business travel — flights, hotels, car rentals, and related expenses for trips with a primary business purpose — is fully deductible. Meals during business travel are 50% deductible. Business meals where you discuss business with clients, partners, or employees are also 50% deductible. Keep receipts and note the business purpose and who was present.
Purely personal meals, even if you eat alone and are away from home, are not deductible. Do not try to deduct your regular lunch.
Professional Services and Education
- Accounting and tax preparation fees: Fully deductible, including the cost of professional tax software.
- Legal fees: Deductible for legal services related to your business operations.
- Professional development: Courses, books, conferences, and subscriptions that maintain or improve your professional skills are deductible. Education that qualifies you for a new profession is not deductible.
- Professional memberships and dues: Trade association dues and professional certification fees are deductible.
Marketing and Business Software
Advertising costs, website hosting, domain registration, marketing software, CRM tools, accounting software, and other digital tools used for business are fully deductible as ordinary and necessary business expenses. Keep records of what each subscription is for and confirm it is used exclusively or primarily for business.
Phone and Internet
If you use your phone and internet connection for both personal and business purposes, you can deduct the business-use percentage. If your phone is used 60% for business, deduct 60% of your monthly bill. For a home office that depends heavily on internet, a 50%–80% business-use percentage is commonly supported.
Qualified Business Income (QBI) Deduction
Self-employed workers who operate as sole proprietors, partnerships, or S corporations may be eligible for the Qualified Business Income deduction under Section 199A. This deduction allows eligible taxpayers to deduct up to 20% of qualified business income from their taxable income. The calculation can get complex for higher earners and service businesses, so consult a tax professional if your income exceeds the phase-out thresholds.
Recordkeeping Best Practices
Every deduction must be supported by documentation. Best practices:
- Keep separate business and personal bank accounts
- Use a dedicated business credit card for all business expenses
- Save digital copies of receipts — apps like Expensify or Dext work well
- Keep a mileage log (date, destination, business purpose, miles) for vehicle deductions
- Retain records for at least three years after the tax return filing date
Bottom Line
Self-employed workers have access to more tax deductions than most W-2 employees. The SE tax deduction, home office deduction, health insurance premiums, retirement plan contributions, and business equipment deductions can collectively reduce your taxable income by tens of thousands of dollars. Track every business expense, keep good records, and work with a CPA if your situation is complex — the cost of professional tax preparation for a self-employed person is itself a deductible business expense.