Self-Employment Tax Deductions: Complete Guide for 2025
When you're self-employed, every legitimate business expense reduces your taxable income. That means lower self-employment tax and lower income tax. Here's what you can deduct and how to document it properly.
The Big Ones: Deductions That Save Thousands
1. Home Office Deduction
If you use part of your home exclusively and regularly for business, you can deduct either $5 per square foot (simplified method, max 300 sq ft) or the actual percentage of your home expenses (mortgage/rent, utilities, insurance, repairs).
Calculate your deduction: Home Office Calculator
2. Vehicle Expenses
For 2025, the standard mileage rate is $0.70 per business mile. Track every business trip with date, destination, purpose, and mileage. Your credit card statements showing where you filled up aren't enough; the IRS wants a mileage log.
Calculate your deduction: Mileage Calculator
3. Health Insurance Premiums
If you pay for your own health insurance and aren't eligible for coverage through a spouse's plan, you can deduct 100% of premiums for yourself, your spouse, and dependents. This is an above-the-line deduction, meaning it reduces your adjusted gross income.
4. Retirement Contributions
Self-employed individuals can contribute up to $70,000 to a SEP IRA or Solo 401(k) for 2025. This reduces your taxable income dollar for dollar.
Commonly Missed Deductions
- Software and subscriptions: Adobe Creative Cloud, QuickBooks, project management tools, industry-specific software
- Professional development: Courses, certifications, conferences, books directly related to your work
- Business meals: 50% deductible if directly related to business (client meetings, networking events)
- Phone and internet: The business-use percentage of your phone and internet bill
- Bank and credit card fees: Merchant processing fees, monthly account fees for business accounts
- Professional services: Accountant fees, lawyer fees, business consultant fees
From Our Practice
The mistake we see most often: people deducting personal expenses as business expenses. A Manassas graphic designer tried to write off his family's entire cell phone plan because he "sometimes checks email on it." That doesn't work. If your phone is 30% business use, you deduct 30% of the bill.
Another common error: not keeping documentation. The IRS doesn't accept "I know I spent it, I just don't have the receipt." Your credit card statement showing a charge to Office Depot isn't enough, you need to document what you bought and why it was for business.
What You Cannot Deduct
The IRS is very clear: personal expenses are not deductible, even if you're self-employed. This includes:
- Commuting from home to your first client (unless you have a home office)
- Gym memberships (even if you're a personal trainer)
- Clothing that can be worn outside work (unless it's a uniform with company logo)
- Meals not directly related to business
How to Document Deductions
Keep your credit card statements. For larger expenses, keep invoices. For mileage, use a mileage tracking app or spreadsheet. The IRS can audit up to three years back, so keep records for at least that long.