Let’s find a tax preparation office for you

or

Information regarding browser or device support

Oh no! We may not fully support the browser or device software you are using !

To experience our site in the best way possible, please update your browser or device software, or move over to another browser.

Deductions

The Most Common Deductions for Self-Employed Workers

Mark Steber Chief Tax Information Officer Published On February 14, 2020

The number of self-employed workers in the U.S. today has outpaced Bureau of Labor Statistics (BLS) projections.

This sector of the US economy is experiencing enormous growth, and with more people than ever becoming entrepreneurs, joining the gig economy, starting a small business, or otherwise working as self-employed professionals, it could pay to know how self-employment can impact your tax situation. 

One of the most important deductions is the new Qualified Business Income (QBI): Self-employed workers and small business owners might be eligible for a deduction of 20% of eligible income before taxes. The QBI deduction is available to taxpayers whose taxable income falls below $160,725 for individuals, or $321,400 for joint returns, and to certain taxpayers with higher business income. QBI is income from a trade or business in the US, such as rideshare driving, consulting, e-commerce, or reselling income. The deduction does not include wages earned as an employee and business-generated capital gains, interest, and dividend income.

In addition to the QBI deduction, here are seven of the most important and common deductions available to gig-economy workers, freelancers, contractors, the self-employed, small business owners, and entrepreneurs. Depending on their profession and whether they qualify for these deductions, these taxpayers may be able to deduct:

  1. Maintenance and repairs for vehicle upkeep and expenses, including oil, registration fees, insurance, parking fees and tolls, and depreciation (if you own the car or truck), or leasing costs: These may include the fees paid to a cab company for using its cars, or rental fees for a truck driver's trailer. You should be sure to keep a log of all job-related expenses, miles driven for business, and your total mileage for the year. You must have tracked all the miles and all the expenses to determine the business portion of the expenses.
  2. Travel expenses including transportation, lodging, and incidental expenses such as laundry, phones, maid service, and others.
  3. Cost and maintenance of special work clothing. To be deductible, the clothing must be required for work and not suitable for everyday use – for example, safety shoes for a building contractor while on the construction site.
  4. State and local government licensing and regulatory fees as well as liability insurance premiums.
  5. Union and trade association dues as well as subscriptions to trade publications.
  6. The expenses associated with a home office as well as equipment and supplies.
  7. Continuing education for self and employees.

If you’ve made $600 or more from any one gig, you should receive Form 1099-MISC, and if you’ve been paid through a third party, you can expect to get Form 1099-K if you’ve been paid at least $20,000, or have at least 200 transactions. Even if you receive neither of these forms, you are still responsible for reporting – and paying taxes on – this income.

If you’re self-employed in America’s rapidly expanding gig economy, getting to know the tax deductions you might qualify for can help you stay ready and keep track of your job-related spending throughout the year. Don’t be surprised at tax time; stay informed and stay on top of your taxes.

If a business paid you $600 or more for work you completed as a non-employee, you should receive Form 1099-NEC. If you’ve been paid at least $20,000 through a third party, or have at least 200 transactions, you can expect to get Form 1099-K. Even if you receive neither of these forms, you’re still responsible for reporting—and paying taxes on—your income.

Filing your taxes as a self-employed worker can be quite different from managing your taxes as a full-time worker at a single company. Whether you’re a gig economy worker, freelancer, contractor, small business owner, or entrepreneur, you may be able to save money in the form of self-employment tax deductions.

Qualified business income (QBI)

Self-employed workers and small business owners might be eligible for a deduction of 20% of eligible income before taxes. The QBI deduction is one of the most common tax write-offs for self-employed workers. For tax year 2020, this type of deduction was available to taxpayers whose taxable income fell below $163,300 for individuals or $326,600 for joint returns, as well as certain taxpayers with higher business income.

QBI is income from a trade or business in the U.S., such as rideshare driving, consulting, e-commerce, or reselling income. The QBI deduction does not include wages earned as an employee and business-generated capital gains, interest, and dividend income.

What is considered deductible for self-employed workers?

According to the Internal Revenue Service (IRS), deductible business expenses for taxes must be both necessary and ordinary. That means the expense must be:

  • Common and accepted in your business or trade
  • Appropriate and helpful for your business or trade

Deductible business expenses may include the cost of goods sold, capital expenses, and other expenses. Keep the following potential business expenses for taxes in mind and save your receipts and records throughout the year in order to maximize your self-employment deductions.

1. Supplies

Most businesses have two types of supplies. There are the office supplies such as pens, pencils, note pads, calendars, etc. and the work supplies that are specific to a job. A painter would have supplies such as paintbrushes, cleaner, tape, etc.

Keep track of your expenses for each job and for your office supplies. This will help you lower your income taxes and Self-Employment (SE) taxes when it comes time to do your tax return.

2. Vehicle maintenance and repairs

If you use your vehicle for your self-employed work, you may be able to deduct maintenance and repairs for vehicle upkeep and expenses—this may include expenses such as oil, registration fees, insurance, parking fees, tolls, and depreciation (if you own the car or truck), or leasing costs.

These deductible business expenses for taxes may include fees paid to a cab company for using its cars, or rental fees for a truck driver's trailer. Be sure to keep a log of all job-related vehicle expenses, including miles driven for business and your total mileage for the year.

3. Travel expenses

If you travel for work, you may be able to deduct travel expenses. This can include transportation and lodging, along with incidental expenses such as laundry, phones, maid service, and other expenses.

4. Special work clothing

For self-employed workers who require special work clothing, you may be able to deduct your clothing’s cost and maintenance. To qualify as a self-employed tax write-off, the clothing must be required for work and not suitable for everyday use. For example, qualifying clothing may include safety shoes for a building contractor.

5. State and local government licensing fees

Do you need to obtain licensing in order to perform your work? What about insurance? If you’re self-employed, you may be able to deduct state and local government licensing and regulatory fees, as well as liability insurance premiums.

6. Union and trade association dues

If you belong to professional organizations, you may be able to deduct your association fees for those organizations. Subscription fees for trade publications may also qualify as self-employment deductions.

7. Home office expenses

 In order to be able to deduct home office costs, your space must be dedicated to work. For example, if you set up your laptop and work at the kitchen table where your family also eats dinner, that’s not deductible. A room that’s designated solely for your work may be eligible for a self-employment tax deduction, though.

Within your home office, you may be able to deduct expenses such as the business percentage of electricity, mortgage interest, equipment, real estate taxes and home maintenance. You’ll need to know how big the space is and how that compares to your whole home in order to calculate an accurate deduction.

8. Continuing education

Expenses associated with continuing education may be eligible for tax deductions. If you run a business, continuing education deductions may count for both yourself and any work-related education that you cover for your employees.

Other potential self-employment tax deductions

In addition to the common self-employment deductions listed above, you may also be able to deduct the following business expenses, if applicable:

  • Advertising, branding, marketing, and promotional items
  • Bank, credit card, and digital payment processor fees
  • Business administrative expenses, such as LLC fees, business software, postage, and mail forwarding service
  • Business gifts (limited to no more than $25 per recipient each year)
  • Business insurance
  • Business meals, up to 50% of meal cost
  • Business real estate renting or leasing, including coworking space and office building rentals
  • Employee wages and payroll
  • Health insurance premiums paid for employees
  • Interest paid on lines of credit, credit cards, and business loans
  • Labor by subcontractors
  • Professional services such as accounting and legal services
  • Supplies used in providing services or running your business

What paperwork do you need for self-employment deductions?

When you file your taxes as someone who’s self-employed, you’ll need the following paperwork in order to obtain the full value from your potential tax deductions. Keep these records throughout the year to reduce your stress come tax time.

  • Accounting documents
  • Allowances and returns
  • Bank and credit card statements
  • Checking and savings account interest
  • Employee payments
  • Gross receipts
  • Inventory costs
  • Partnership agreements, if applicable
  • Payroll paperwork
  • Previous year’s business tax return, if applicable
  • Professional fees and contractor expenses
  • Receipts for advertising and marketing
  • Receipts for gifts, transportation and travel
  • Receipts for equipment, office supplies and phone(s)
  • Receipts for home office or office rental and expenses
  • Sales records

If you’re not sure which documents do and do not apply to you, ask a tax professional for help. Jackson Hewitt’s Tax Pros can help you determine which deductions make sense for your specific work situation.

Get the most out of your self-employment tax return

If you’re self-employed in America’s rapidly expanding gig economy, knowing the tax deductions you might qualify for can help you prepare for tax season and encourage you to keep track of your job-related spending throughout the year. Stay informed and stay on top of your taxes by getting in touch with Jackson Hewitt. Our Tax Pros are happy to answer any questions you may have on self-employment tax deductions.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

More about Mark Steber Our Editorial Policy

Related Articles

Tax Tips & Deductions for Salon Owners

Tax Tips & Deductions for Salon Owners

Social media is full of gorgeous men and women whose looks we want to emulate. So, we turn to you, our local hairstylist, barber or cosmetologist to magically transform us. And you go to work – washing, plucking, trimming and polishing to bring out our natural best. We know we can count on you. You are both beautifier and confidante – only you know our real hair color!
This National Beautician’s Day we thank you for glowing skin, fabulous hair and fierce nails as we offer tips on how to take care of your taxes.

View more
Spring Tax Checklist for Small Business

Spring Tax Checklist for Small Business

Although April 17 has come and gone, it’s a great time to go through a Spring Tax Checklist to keep you, and your small business, on track while avoiding compounding penalties. Breaking up your business tax preparation into smaller steps helps you conquer the job. Here are four things you can do to have a productive mid-year and prepare for a smooth tax season next year. 

View more
Don’t Miss Out on These Top Seven 1099-Reporting Deductions

Don’t Miss Out on These Top Seven 1099-Reporting Deductions

The sharing economy can be lucrative! More and more people are entering the sharing economy at a record pace. Whether ridesharing such as Uber or Lyft, apartment- or house-renting using Airbnb, crowdfunding with Kickstarter, knowledge-sharing through TaskRabbit, or even your online store through Etsy, the funds you receive are income. The more profitable your activities were in 2017, the more of an impact they may have on your tax return - it’s all good until you receive an unexpected tax bill.

View more

Why Jackson Hewitt®?

We see you

Our Tax Pros will connect with you one-on-one, answer all your questions, and always go the extra mile to support you.

We got you

We have flexible hours, locations, and filing options that cater to every hardworking tax filer.

We fight for you

We won't stop until you get every dollar you deserve, guaranteed. It's what we've been doing for over 35 years.