Updated: Jan 2, 2021
Self-employed tax deductions are the superheroes of your business taxes. They swoop in, lower your tax bill, and save your wallet from some serious destruction. But before you can reap the benefits of tax write-offs, you need to know what expenses are tax-deductible if you work from home.
That’s where we come in. We’ve put together an epic list of self-employed deductions. And while not every deduction will apply to you, knowing what’s deductible can help you plan your future expenses.
Who Can Claim These Tax Deductions?
If you’re self-employed, then you can claim these tax deductions. The IRS defines self-employment as carrying on a trade or business as a sole proprietor, independent contractor, single-member LLC, or as a member of a partnership.
Even if your business isn’t making money, as long as you’re engaged in an activity that’s “profit-driven” (in other words, your goal is to make money eventually), then you’re still considered self-employed.
You also don’t have to be in business for yourself full time. If you have a side hustle and a part-time job, you’re still considered partially self-employed.
Self-Employed Tax Deductions
Advertising & Marketing
The cost of telling the world about what you do can quickly add up. The good news is that you can write off advertising expenses such as:
Online ads, like ad placements on websites and Google Ads
Social media advertising, like ads on Facebook, Instagram, Twitter, LinkedIn, and Pinterest
Print advertising in newspaper, magazines, and industry journals
Business directory listings
Email and social media marketing software
Content marketing costs
The cost to attend networking events
Even if you work from home, you still have to venture out into the world. If you drive your car for work, then you can write off your business driving and other costs associated with the trip. Driving to meet vendors, make pickups and woo clients can be hard on your car, but a few self-employment tax deductions might help you recoup some of that wear and tear.
What you can deduct: Deduct your “actual car expenses” instead. These include depreciation, licenses, gas, oil, tolls, parking fees, garage rent, insurance, lease payments, registration fees, repairs and tires. You may have to do this anyway if you’re using five or more cars in your business. If you’re leasing your car, check out IRS Publication 463 for rules about the amount of lease payments you can deduct.
There are two ways to write off the use of your car, through the mileage reimbursement (this is the most common method for home-based businesses) and the actual cost method.
Mileage reimbursement: Every year, the IRS sets a standard mileage rate. For 2020, the rate is 57.5 cents per mile. The way the reimbursement works is that you multiply your total annual business mileage by the standard rate. The result is your tax deduction.
Total business mileage x Standard mileage rate = Tax deduction
Let’s say you drive 1,200 business miles this year. When you do your taxes, you’ll multiply 1,200 by 57.5 cents:
1,200 x $0.575 = $690
In this example, you have a $690 deduction.
Actual cost: With the actual cost method, you write off a percentage of your total vehicle expenses. The percentage is calculated by dividing your business mileage by your total annual mileage.
Business mileage / Total mileage = Deductible percentage
For example, if you drive 1,200 business miles in a year and 6,000 total miles, then you’ll write off 20% of your car expenses. Car expenses include gas, insurance, car washes, oil changes, and repairs.
Let’s say your total annual car expense is $7,500. Here’s how you’ll figure out your deduction:
$7,500 x 0.20 = $1,500
Regardless of what method you use, it’s essential to understand what counts as business mileage. Business mileage is anywhere you drive for business that’s not to or from your principal place of business.
Your principal place of business is where you conduct most of your business. If you work from home, then your principal place of business is your home. If your principal place of business isn’t your home, then any drives from your home to that location are nondeductible.
But, don’t despair. All other business driving counts as business mileage, including driving to:
Visit clients or job sites
Meet with colleagues or contractors
Workshops and other educational events
Run errands for your business
The airport for business travel
What happens if your principal place of business is your home? Then anywhere you drive to and from for business is tax-deductible!
At the end of the year, tally the number of miles you drove in the car for business, multiply that by the IRS’ standard mileage rate — 57.5 cents per mile in 2020 — and deduct the total. Be sure to keep a mileage log; you’ll need it if you’re audited.