7 Overlooked Tax Deductions for the Self-Employed

1. Business vehicle use tax deduction

If you drive your own car for business, there’s a business vehicle use tax deduction that isn't just for Uber or Lyft drivers. In general, self-employed persons who make deliveries, drive to a client's location, or otherwise use a personal vehicle for work-related purposes could claim the tax deduction for business use of a vehicle.

There are two ways to calculate the business vehicle use deduction. You can use either the standard mileage rate or your actual car expenses:

• If you use the standard mileage rate, you can deduct $0.70 per mile for 2025 ($0.725 for 2026, which you file for in 2027). Just keep good records of the dates and miles you drive for work, and keep in mind that driving for personal trips or errands is not considered business use of the vehicle.
• With the actual expenses method, you add up your car-related expenses for the year (e.g., gas, oil, tires, repairs, parking, tolls, insurance, registration, lease payments, depreciation, etc.), and multiply the total by the percentage of total miles driven that year for business reasons.
  
  

For example: Under the actual method, if your total annual car-related expenses are $5,000, and twenty percent of your miles were for business, then your tax deduction for business use of your vehicle is $1,000 ($5,000 x .2).

2. Tax write-off for Social Security taxes you pay

If you’re self-employed, you must pay a special 15.3% tax Instead of having payroll taxes taken out of your paychecks like “regular employees” do.

The overall tax consists of two parts:

• 12.4% Social Security tax
• 2.9% Medicare tax

The good news is that you get to write off half of the self-employment tax that you pay. Plus, you don't have to itemize deductions on your federal income tax return to take advantage of this deduction. That means that you can claim the standard deduction and still write off half the self-employment Social Security tax.

There are limits on the tax that help, too. You only have to pay the 15.3% tax if you have net earnings of $400 or more from self-employment during the year. Also, for 2025, the maximum amount of self-employment income that is subject to the 12.4% Social Security tax is $176,100 ($184,500 for 2026). There's no Social Security tax due on income above that amount.

3. Home office tax deductions

Whether you're fully self-employed, or whether you do freelance work in addition to your "regular" job, you may be able to claim a deduction for your home office.

The key to the home office tax deduction is to use part of your home or apartment regularly and exclusively for your moneymaking endeavor. But if you meet the requirements for a “qualifying home office,” you can deduct part of your utility bills and insurance costs, which can offset your business income. You can also write off part of your rent or part of your mortgage if you own your home.

Many taxpayers who work from home skip the home office tax deduction. Some don’t know about it. Others might worry that claiming a deduction for their home office will trigger an IRS tax audit.

But provided you meet the strict requirements, the IRS has a simplified method that allows taxpayers to deduct $5 for every square foot that qualifies for the home office deduction:

• So, if you have a 300-square-foot home office (i.e., the maximum size allowed for this method), your home office deduction would be $1,500.
• You get to take advantage of this tax deduction every year you have a qualifying home office.

4. Health insurance premiums tax deduction

Although medical expenses are deductible, few taxpayers can deduct them. That’s because you have to itemize deductions to get the health insurance premium tax break (and most taxpayers do not).

Also, the deduction for health insurance premiums is only available to the extent that your expenses exceed 7.5% of your adjusted gross income. That’s a high bar for some people who may have significant health expenses but not enough to meet the 7.5% adjusted gross income threshold.

But there's a big exception to this for the self-employed. If you are self-employed, you can deduct what you pay for medical insurance premiums for yourself and your family — whether you itemize or not — and without regard to the 7.5% threshold.

You don't qualify for the health insurance premium tax deduction, though, if you're eligible for employer-sponsored health insurance through another job (if you have one in addition to your business) or through your spouse's job. You also must have net self-employment income.

Also, if you continue to be self-employed after qualifying for Medicare, the premiums you pay for Medicare Part B and Part D, plus the cost of supplemental Medicare policies or the cost of a Medicare Advantage plan, can be deducted as health insurance premiums. This tax deduction is available without having to itemize.

Note: As of 2026, self-employed individuals may be eligible for several new tax benefits. The 2025 legislation some call the "big beautiful tax bill," enacted on July 4, 2025, provides for the deductibility of behavioral-health-related insurance costs; expands eligibility for ACA marketplace subsidies (note that the ACA subsidies expired on December 31, 2025 and have not been renewed); provides a new refundable tax credit for individuals who enroll in plans that meet strengthened behavioral-health standards (note that IRS guidance and rules have not been finalized); expands FSA and HSA qualified medical expense eligibility; and provides tax incentives for self-employed clinicians.

5. Qualified business income deduction

There is a tax deduction that self-employed people may be able to take advantage of called the qualified business income (QBI) deduction. The deduction for QBI is available for owners of S corporations, partnerships, LLCs and other "pass-through entities. That includes self-employed people operating as sole proprietors. Note that QBI applies to the income tax, not the self-employment tax.

It's a tricky tax break with several special rules and restrictions. But the QBI deduction can be significant if you can jump through all the tax requirement hoops:

• Generally, eligible self-employed people can deduct up to 20% of QBI from their business.
• QBI is the net amount of income, gain, deduction, and loss from the business included in your taxable income (minus capital gains and losses, certain dividends, interest income, wage income, and a few other items).
• Depending on the nature of your business, you might not qualify for the 2025 QBI deduction if your taxable income is $197,300 or more ($394,600 for joint filers).
• For 2026, the taxable income threshold jumps to $203,000 for single filers and $406,000 for joint filers. A $400 minimum deduction is available for those with at least $1,000 QBI.

Again, the deduction for qualified business income is complicated. But if you’re self-employed, it could be worth looking into.

6. Retirement tax shelters and credits for the self-employed

Once you start working for yourself, the door opens wide to tax-sheltered retirement plans.

Unlike employees, self-employed people can contribute pretax money to a simplified employee pension (SEP), or a solo 401(k). Both retirement accounts have higher annual limits than regular individual retirement accounts. (Oh, and you can still have an IRA, too.)

As a self-employed person, you may also get a tax credit for contributions you make to your retirement plan if your income isn't too high. This tax break is called the Saver's Credit, and it can trim up to:

• $1,000 off your tax bill ($2,000 for married couples).
• The credit is worth 50%, 20%, or 10% of your contributions, depending on your adjusted gross income.

However, for the 2025 tax year, the Saver's Credit is completely phased out for single filers with a MAGI over $38,250 ($76,500 for joint filers). For 2026, the phase-out for single filers is $40,250 ($80,500 for joint filers).

7. Expensing vs. depreciation

When you buy equipment for your business, you have two choices of how to split the cost for federal income tax purposes.

The first approach is to depreciate the cost. That means that you deduct the expenses over the number of years that the IRS figures is the "life" of the equipment.

For example, here's the default method of depreciation under IRS rules: A computer has a life of five years, so you can write off the cost of that computer over a five-year period. But depreciation is not as simple as claiming 20% of the cost of a business equipment expense each year. For that computer, for example, you would deduct 20% of the cost in the year you put it into service, 32% in year two, 19.2% in year three, 11.52% in year four, 11.52% in year five, and the final 5.76% in year six. (Don't ask why it takes six years to write off a five-year property.)

The second approach is to expense the cost through the Section 179 deduction. With expensing, you can deduct 100% of the qualifying cost in year one.

For 2025, the maximum deduction for equipment eligible for the immediate write-off is increased from $1 million to $2.5 million, although that amount is reduced if you place more than $4 million of new assets into service during the tax year. For tax year 2026, the immediate write-off is increased to $2.56 million and is subject to a $4.09 million phase-out threshold.

The 2025 Trump tax law restored and made permanent 100% bonus depreciation for eligible equipment placed in service after January 19, 2025.

Related Content

• Home Office Tax Deduction: Work-from-Home Write-Offs
• When Are Estimated Tax Payments Due in 2026?
• 2025-2026 Tax Brackets and Federal Income Tax Rates
• Types of Income the IRS Doesn't Tax