It’s Friday night. Your friends went out to see Fast & Furious 9. Or was it 10? The only sound in your bedroom is the gentle tapping of computer keys as you write an article on a high school football game you covered earlier that night. So goes the life of a freelance writer.
Love it or hate it, being self-employed takes discipline and hard work. You might not have normal work hours . . . or a normal paycheck. And to top it off, you have to pay more taxes than the average Joe working for company XYZ. Say what? Yes, if you’re self-employed, you have to pay what’s called the self-employment tax, a 15.3% tax made up of both the employee and employer portions of Social Security and Medicare taxes.
But if all those taxes seem overwhelming, just know there’s hope. The key to lowering your tax bill is through self-employment tax deductions. And there are a bunch of them. We’ll explain a few of the big (and not-so-big) ones. Here are 16 tax write-offs for self-employed people.
- Home Office
- Vehicle Use
- Office Supplies
- Phone and Internet
- Self-Employment Tax
- Travel and Meals
- Educational Expenses
- Business Insurance
- Retirement Plan Contributions
- Legal and Professional Fees
- Start-Up Costs
- Health Insurance Premiums
- Memberships and Publications
What self-employment tax deductions will save you the most money? Let’s get started.
1. Home Office
Working from home has become a way of life for many employees. Yes, pajamas are the new business casual wear. But if you’re self-employed and work from home, you can deduct a portion of your actual home office expenses on your taxes. When we say actual expenses, that means the 70-inch TV in your living room doesn’t count. But the cheesy poster of a sailboat with the caption: “Success: It’s a journey, not a destination” could count as business décor as long as it’s hanging in your office.
You can’t deduct the entire cost of your home, so you’ll need to figure out what percentage of your home is used for business. To do this, you’ll need to dig through your toolbox and find a tape measure. Measure the length and width of your office and multiply those two numbers to get the area.
Let’s say you live in a 1,200-square-foot home and your office is 12-by-12 feet. That means the area of your office is 144 square feet. To find the percentage of your home used for business, divide the area of your office (144) by the total area of your home (1,200) and you come up with 12%. That means you can deduct 12% of your home’s expenses.
So what expenses can you deduct? Well, they include your utility bills (electricity, water and gas), rent, property taxes, mortgage interest, homeowners insurance, repairs and maintenance.1 But if you don’t want to track down all those bills to compute your deduction (organizing documents is an underappreciated art form), the IRS offers a simplified method that calculates your deduction based on $5 per square foot of office space, up to a maximum of 300 square feet.2 But fair warning: If you use the simplified method, you’ll probably end up with a smaller deduction.
2. Vehicle Use
Yes, that hunk of plastic and metal sitting in your driveway can earn you a tax deduction. If you use your car for things like visiting clients, picking up supplies, or ferrying customers around town, you can deduct the use of your car. There are two different ways to figure out the deduction for your car.
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The first and easiest way is to keep track of the miles you drive for work and multiply them by the standard mileage rate for 2021, which is 56 cents per mile.3 So if you drove 500 miles for business last year, you can take a $280 deduction.
The big thing to remember is to keep detailed records of your mileage, noting the date and purpose of your travel. (That 800 miles you drove to Orlando to see Mickey doesn’t count.) You can track miles the old-fashioned way with a notebook you keep in your car, or you can download a smartphone app that will do most of the work for you.
Deducting actual car expenses is the second (and much more complicated) way of getting a deduction. To do this, you have to figure out the percentage you use your car for business use. For instance, if you’re a carpenter and drive your car 15,000 miles a year: 5,000 miles for business and 10,000 for personal use, you can deduct 33% of your car’s expenses. These include car payments, gas, oil changes, repairs, insurance and parking fees. You’ll need to document all these expenses, so you might have a mountain of receipts at the end of the year.
If you purchase a car and use it for business more than 50% of the time, you can take a one-time deduction called a section 179 expense for the total cost of the car multiplied by the percentage it’s used for business.4 So the deduction for a $24,000 car used for business 50% of the time would be $12,000. But if you don’t want or need to take the full deduction all at once, you could depreciate the asset and take smaller deductions over the course of several years.
3. Office Supplies
These can add up, especially if you’re killing a bunch of trees printing stuff all the time. Office supplies like paper, printer cartridges, pens and paper are all deductible. Computer software and software subscriptions are also deductible.
4. Phone and Internet
Smartphones ain’t cheap! You can deduct the cost of your phone and internet service. To calculate your deduction, you have to figure out the percentage you used your phone and internet for business and personal use. That’s probably an impossible task since business and personal use often get blended, but just do your best to come up with a close estimate and make sure to keep billing statements and document your math in an orderly way (not on a cocktail napkin).
If you pay for a dedicated phone line or internet connection for your home office, then you can deduct the full amount. Yes, Batman could deduct the entire cost of the Batphone since it’s a dedicated business line. Even freelance crime fighters can use tax deductions!
5. Self-Employment Tax
As mentioned above, the self-employment tax is a 15.3% tax on your net earnings. It’s made up of 12.4% for Social Security and 2.9% for Medicare.5 Employers are required to pay half of Social Security and Medicare for their employees, but if you’re self-employed, you have to foot the whole bill yourself. The one piece of good news is that you can deduct half of your self-employment tax bill because the IRS considers it a business expense.
Ah, the tools of the trade. If you use equipment for business, you can deduct it. That fancy new laptop? Yep. That digital camera? Sure. That cordless drill? You bet. But as with other deductions, you’ll have to figure out the percentage used for business and personal use. So if you use your $3,000 laptop 50% of the time for business, you can only deduct $1,500. You can deduct up to $2,500 for each individual piece of equipment through what’s called a safe harbor deduction.6
If something costs more than $2,500, you can use a section 179 expense deduction (mentioned above) to deduct the whole amount or depreciate the asset and take smaller deductions over the course of several years. Say you purchased a $5,000 computer. Depreciation involves taking the cost of the machine ($5,000) and dividing it by its life expectancy (say, five years) to come up with a $1,000 deduction that you’d be able to take every year for five years. We’re keeping the math simple!
7. Travel and Meals
Who doesn’t like a road trip? If traveling overnight for business, you can deduct 100% of the cost of airfare, lodging and transportation and 50% of meals.7 The IRS specifically states that meals and beverages can’t be lavish or extravagant, but they don’t give a dollar amount to define what is lavish.8 Just use good judgment.
You don’t have to eat every meal on the cheap (we won’t judge you for scarfing burgers). But if you order a $200 bottle of Dom Perignon with your burger, that’ll get flagged as lavish. If you don’t keep track of your meal receipts, you can compute your deduction based on the standard meal allowance, which ranges from about $60 to $80 per day depending on the city.9
8. Educational Expenses
You can deduct tuition, fees and the cost of books for education or training that improves or maintains your skills for your existing business.10 The key is that the expenses must improve your existing skills. Basket-weaving classes aren’t going to cut it (unless you’re a self-employed basket weaver).
So, if you’re a freelance writer and attend a writer’s workshop to hone your craft, that’s deductible. But if you decide to take college classes on computer programming because you want to change careers, that’s not deductible from self-employment taxes (though you might be able to claim the Lifetime Learning Credit on your taxes). But if you need more education to find a job you love, don’t let a tax deduction keep you from going back to school.
9. Business Insurance
This deduction is for premiums paid to cover things like theft, accidents, fires or similar losses related to your business.11 If you work in a risky profession like construction or shark fishing (cue the Jaws music), you probably need business insurance to cover accidents or liability. If you have a home office, most of your potential losses will be covered by your homeowners insurance, and you would have already received a deduction for that through the home office deduction. So you can’t deduct a premium twice.
10. Retirement Plan Contributions
If your employer offers a 401(k), you’re able to make pretax contributions to your retirement account through payroll deductions. But if you’re self-employed, you still have investing options with tax advantages. You can contribute money to an individual 401(k), a Roth or traditional IRA or a Simplified Employee Pension IRA (SEP IRA). Some of these contributions are tax-deductible depending on the type of account.
Okay, we know you’re not going to drop $6 million on a Super Bowl ad, but most money you spend getting your name out there can be considered advertising. And advertising is a deductible expense. It could be the cost of building or hosting a website, printing flyers or business cards, or placing ads on Facebook.
If you’re tired of setting up office in your local coffee shop and decide it’s time to rent a place, the rent you pay is deductible. And since you won’t have access to coffee shop Wi-Fi (or decaf soy lattes), you’ll be able to deduct the cost of internet and any utilities as well. If you rent equipment, like a copy machine, you can deduct that too.
13. Legal and Professional Fees
If you hired an attorney to set up an LLC or an accountant to handle your financials or taxes, those expenses are tax deductible. A tax pro can help you with more than just filing taxes. They can also take the headache out of payroll and bookkeeping. And they’ll keep track of all of your deductions, so you don’t have to!
14. Start-Up Costs
If you had to spend some money to get your business up and running, the IRS allows you to deduct $5,000 in start-up costs.12 These costs could include market research, consulting fees or advertising.
If you’re fully self-employed and purchase medical, dental or long-term care insurance for yourself or your family, your insurance premiums are tax deductible.13 But there’s a spoiler: If you’re eligible to be on your spouse’s insurance plan, even if it is cheaper to be on your own plan, you can’t take the deduction.
16. Memberships and Publications
Membership fees are deductible for organizations, including boards of trade, business leagues, chambers of commerce, civic organizations, professional associations, real estate boards and trade associations.14 Fees for clubs that are designed for business or pleasure, like country clubs, sporting clubs or airline clubs, are not tax deductible.
Publications directly related to your business, such as trade journals, magazines or books, are deductible. But that copy of People you grabbed in the checkout line? Nope.
Find a Tax Pro in Your Area
Keeping track of all these deductions could end up being a side hustle all by itself! If you’re feeling overwhelmed, a RamseyTrusted Endorsed Local Provider (ELP) can help you file your taxes with confidence. Find a tax pro today!
If your taxes are pretty straightforward and you want an easy-to-use tax software that can give you some peace of mind, check out Ramsey SmartTax! No hidden fees, no advertisements, no games. That’s how it should be!