If you are self-employed and/or your income is reported at the end of the year on a 1099-NEC form instead of a W-2 wage statement, then you most likely can take business deductions that will lower your adjusted gross income and your tax bill. Keep in mind that there are specific expense categories that you must adhere to if you want to take those deductions.
Business Use of Home
If you have an office space in your home that you use specifically for your self-employed or freelance income, then you can deduct a portion of the expenses related to that office space. That portion is based on the square footage of your office in comparison to the square footage of your entire home.
Therefore, you need to keep track of:
- Total Home Square Footage
- Office Square Footage (a typical bedroom or office is usually 100 square feet but yours may be larger or smaller)
- Rent
- Rental Insurance
- Repairs or Maintenance
- Utilities
- If you own your home, mortgage interest and property taxes.
Vehicle Expenses
If you use your car for business purposes, you may take deductions in a similar manner to the business use of home. The difference is that, with auto expenses, you must either take the standard mileage rate or actual expenses—you cannot take both. However, it can be beneficial to keep track of both to see which is more useful to you at tax time.
For vehicle expenses, keep track of:
- Total Mileage for the year
- Business Only Mileage for the year
- Gas
- Repairs
- Lease Payments (if you own your car, loan payments are not deductible)
- Auto Insurance
- Tires
Other Self-Employed Business Expense Categories
These are the other most commonly used expense categories for those who are self-employed, but please note that this is not an exhaustive list and will depend on your business needs:
- Accountant
- Advertising
- Contract Labor
- Dues and Subscriptions
- Internet Service
- Legal and Professional
- Meals (but only 50% can be deducted)
- Office Expenses
- Parking and Tolls
- Postage
- Printing
- Repairs and Maintenance
- Software and Apps
- Supplies
- Telephone
- Tools
- Travel
- Utilities
These self-employed business deductions are reported on schedule C of your federal tax return, so they are also referred to as schedule C deductions.
Have questions about the self-employed expenses you can deduct for your business? Call us at Moore & Paquette Tax Group to get your questions answered.