17 Beneficial Tax Deductions for Independent Contractors in 2024

Tax deductions for independent contractors are business or work-related expenses paid for by freelancers, sole proprietors, or self-employed individuals that they can itemize on their tax returns later on to reduce the amount of taxes they owe.

Knowing the different tax deductions that apply to your work setup as an independent contractor enables you to manage your expenses and possibly take home a higher percentage of disposable income.

That said, we’ve explained 17 of the most common and useful tax deductions for self-employed individuals in this article. Read on to find out whether you qualify for one or more of these tax write-offs, and learn how you can use these deductions to your advantage!

Key Takeaways

• Some of the most common standard deductions for self-employed individuals are home office, self-employment tax, health insurance, and educational expenses.
• Several tax deductions for independent contractors can be itemized expenses, particularly expenditures involving business-related travel, advertising, business loans, credit card interests, and purchasing office supplies.
• Estimating your combined FICA taxes is essential in determining how much you can deduct from your income taxes using the self-employment taxes that you owe.

#1. Home Office Deduction

Home office deduction applies when you conduct your business operations at home or have a dedicated space in your place of residence to fulfill your freelancing job. To be more specific, you can deduct part of your property taxes, mortgage, rent, or housing expenses from the income taxes you owe.

According to IRS Publication 587, Business Use of Your Home, if you want to use the home office tax deduction for independent contractors, you can use the number of square feet that comprises the space your home office takes up in your residence as your basis. This method is otherwise called the Standard Method.

When using the Standard Method to claim your home office deduction, you must furnish Form 8829, Expenses for Business Use of Your Home, and attach the said IRS form to your Schedule C.

Alternatively, you can also try the Simplified Method, which involves subtracting $5 for every square foot of your home that you use exclusively for business or work. Under the Simplified Method, you can use up to 300 square feet of your residential area for reference or deduct up to $1,500 from your taxes.

It is crucial to underscore that full-time employees working remotely, working from home, or employed under a hybrid (a combination of office-based and home-based) work setup are not eligible for a home office deduction.

In fact, the assumption is one of the 13 most common tax myths that all taxpayers—both independent contractors and W-2 employees alike—must be aware of to avoid mistakes in filing their returns, estimating their taxes, and assessing tax deductions applicable to their tax situation or income.

#2. Self-Employment Tax Deduction

With the self-employment tax deduction, you report your self-employment tax as part of your business expenses to reduce the amount of taxes you have to pay. Self-employment taxes are your FICA (Social Security and Medicare) taxes.

Social Security & Medicare Taxes for Independent Contractors

The tax treatment of Social Security and Medicare taxes for independent contractors differs from that of W-2 employees. Normally, employers and employees share the payment for FICA taxes, which means that workers employed by a company or organization pay significantly lower tax amounts.

On the other hand, independent contractors shoulder the full tax rates for both Social Security (12.4%) and Medicare (2.9%), leaving them with a self-employment tax rate of 15.3%.

Additionally, the IRS adds a 0.9% tax rate on top of the Medicare taxes of self-employed individuals whose earnings exceed a specific threshold.

The income thresholds for Medicare taxes for 2024 are as follows:

As for Social Security taxes, the OASDI (Old Age, Survivors, and Disability Insurance) has set the contribution and benefit base, or wage base, for Social Security taxes for the year 2024 at $168,600.

When deducting your self-employment taxes from your income tax, you can subtract half of your combined Medicare and Social Security taxes. To do so, you must report half of your calculated self-employment tax on Line 15 of your Schedule 1 tax form.

Remember to use your Schedule SE (Form 1040) to figure the tax due on net earnings from self-employment.

#3. Health Insurance Deduction

The health insurance deduction is also one of the most popular tax deductions for independent contractors. To qualify for a health insurance deduction as an independent contractor, you must not have another job or work wherein you are enrolled in an employer-sponsored health insurance plan.

Similarly, if you are married, you must not be eligible or qualified to enroll in your spouse’s employer’s healthcare plan or any other employer’s health insurance coverage.

The reason behind this is that it is possible that your spouse or other employer’s medical insurance coverage may cost more than your preferred healthcare premiums, which makes you ineligible to use the premiums to reduce your taxes.

Meanwhile, you may qualify to use this deduction if you purchased medical insurance policies for you and your immediate family.

In that regard, the IRS allows self-employed individuals to subtract dental and medical premiums for the enrolled taxpayer’s dependents, spouse, and children aged 27 and below at the completion of the tax year.

Use Form 7206, Self-Employed Health Insurance Deduction (formerly Worksheet 6A), to assess the amount of health insurance tax deductions you can report on Line 17 of your Schedule 1.

Self-employed individuals who enrolled in and contributed to a qualified Health Savings Account (HSA) contributions plan as a sole proprietor may also deduct their contributions from their taxable income.

#4. Travel Deduction

Some tax deductions for independent contractors, particularly business owners, have to do with undertakings that are crucial in ensuring their operations are carried out continuously and successfully.

The travel deduction strictly applies to business-related travel costs, such as airfare, ride-hailing services, and other transportation expenses. The said deduction also covers your meals and accommodation during your business trip.

Note that your destination must not be within the city or tax home of your business location if you want to be eligible for an income tax deduction using your travel expenses. You must also have a specific objective and itinerary prepared for your business travel.

For instance, you may be attending a business seminar, undergoing extensive training in relation to improving your business productivity, meeting with clients, or implementing strategies to increase your customer acquisition rates.

You can deduct up to 50% of your travel costs, and read up on Publication 463 (2021), Travel, Gift, and Car Expenses for more information on the different guidelines on deducting business travel expenses.

#5. Educational Expense Deduction

Including your educational expenses in your self-employment tax write-offs follows the same rule governing travel deductions: All educational costs must be related to or relevant to your business or work.

For example, you can itemize incurred expenses for books, reading materials, tuition, and other essential and related expenditures such as your travel allowance going to and from your seminars and classes, research, and lab fees.

The tax deductions for independent contractors under the educational expense category also apply if you’re undergoing training, enrolling in a business-related course, or fulfilling the minimum prerequisites for a specific occupation.

To report your education costs, use Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship).

If you’re still unsure whether to report or itemize your educational expenses to qualify for a tax deduction, the IRS has an online tool called “Are my work-related education expenses deductible?” which is designed to help you evaluate whether your work-related education costs are deductible or not.

#6. Vehicle Use Deduction

Under the vehicle use tax deduction for independent contractors, you must have detailed and complete documentation of each trip wherein you used your car for business purposes.

Some key information that must be present in your records includes the date and purpose of your trip, as well as the number of miles covered by your vehicle during your travel.

Aside from your vehicle’s mileage and your trip’s date and purpose, you can also deduct other essential expenses related to the use of your business vehicle. These expenses include gas, oil, depreciation, licenses, insurance, repairs and tires, and registration.

If you want to calculate your vehicle use deduction accurately, you can use the standard mileage rates as your basis. The standard mileage rate in 2024 is 67 cents per mile driven for business purposes, which is up by 1.5 cents from last year’s rate.

You must prepare a regularly updated mileage log and add the total mileage covered by your vehicle for business use within the year. Then, multiply the resulting value by the standard mileage rate. Subtract the total from your income tax.

#7. Business Insurance Premium Deduction

Business insurance premium deduction suits small business and startup owners who pay insurance premiums for business protection. Examples of business insurance as tax deductions for independent contractors include car insurance on business vehicles, fire insurance, and business liability insurance.

You can also deduct premiums paid on employee accident and health insurance. On the other hand, you can deduct health insurance premiums for accidents and medical expenses instead if you’re self-employed.

When recording business insurance deductions, use Line 15 of your Schedule C.

#8. Business Taxes & Licenses

Business taxes and licenses encompass tax write-off examples in the form of regulatory taxes, certifications, and small business licenses that you had to acquire and fulfill to secure your trade’s operations.

All tax deductions for independent contracting that fall under business taxes and licenses must be reported on Line 23 of your Schedule C.

#9. Advertising Deduction

The advertising deduction entails promotional expenses used solely for the promotion of your business.

Examples of ad expenses you can record on Line 8 of your Schedule C are costs incurred for traditional advertising methods such as print and TV ads, producing business merchandise, Google Ads, Facebook, and other digital media marketing services, and participating in trade shows to market your services.

On the other hand, the Internal Revenue Service prohibits itemizing business ad expenses utilized for or by political parties or campaigns.

You can learn more about this rule by reading the stipulations described in the General Rules Relating to Lobbying and Political Campaign Activities by IRC 501(c)(4), (c)(5), and (c)(6) Organizations.

#10. Internet & Phone Expense Deduction

You can also deduct your business’s internet and phone expenses from your income tax. This is particularly true if you have a dedicated cell phone used to carry out your sales and operations.

In the same manner, this type of tax deduction also suits independent contractor jobs that are highly dependent on the internet, cellular service, and smartphone usage, such as data entry, content writing, social media management, and digital marketing.

If you use a cell phone or smartphone for both personal and business use, then the amount you deduct will be based on how much you use your phone to operate your business. For instance, if 40% of your smartphone usage is dedicated to business use, then you can deduct the 40% from the taxes you owe.

There are two ways in which startup owners and sole proprietors can record internet and phone expenses as tax deductions for independent contractors.

The first method involves recording the total phone and internet costs for the year.

Meanwhile, the second option entails depreciating all business expenses incurred from using cellular or internet services and spreading all deductions across the IRS’ recommended useful lifespan for internet and phone usage.

#11. Retirement Plan Costs Deduction

The retirement plan costs deduction is a tax write-off example that is not exclusively available to W-2 employees alone. Your contributions to a solo 401(k) plan can be itemized as one of the tax deductions for independent contractors.

Since your solo contributions to your 401(k) retirement plan are pre tax, you have the option of contributing as either an employee (as yourself) or as an employer.

You can contribute up to 25% of your net income, or a maximum of $69,000, to your 401(k) solo plan and defer up to $23,000 of your self-employment or independent contractor earnings. Independent contractors aged 50 and above can defer up to $30,500 to catch up on their retirement savings.

Alternatively, you can also check out IRA accounts or tax-advantaged investment accounts to help maximize your retirement plan costs by reducing the amount of taxes you owe.

It would be ideal to record your 401(k) and IRA contributions to consistently determine the correct deductions to apply to your returns. Creating an independent contractor pay stub should help do the trick.

#12. Startup Costs

When recording startup costs as tax deductions for independent contractors, having a duly updated self-employment ledger ensures you record all the expenses tied to establishing and maintaining your startup business.

Under startup costs, you can deduct salaries and wages paid to your trainees and newly hired employees, advertising expenses for your opening or launching your business, and consulting fees paid as you build your operations from scratch.

Independent contractors can deduct up to $5,000 of their startup expenses, as well as another $5,000 for the costs that come with setting up an LLC or legal entity for their trade. Conversely, your $5,000 deduction may be affected significantly if your startup and organizational or legal entity expenses exceed $50,000.

Itemizing your startup costs can be complicated, especially since some of these expenses overlap with other tax deductions for independent contractors. These expenses include the money shelled out to advertise for your business’s grand opening or travel costs for when you need to conduct business with suppliers or acquire customers.

As such, it would be helpful to check out the Internal Revenue Services’ Publication 583, Starting a Business and Keeping Records.

#13. Equipment Depreciation

Recording the depreciation in your work equipment or machinery value is also one of the valid tax deductions for independent contractors.

Aside from machinery, other types of tangible properties that can be depreciated according to the IRS include:

• Furniture
• Vehicles
• Buildings

There are also intangible properties, such as software, patents, and copyrights, that you can depreciate and include in calculating your possible tax reductions.

Keep in mind that you must be the owner of the property or equipment that you want to claim for depreciation on your returns.

Since you cannot itemize the purchase of machinery and equipment as a startup cost deduction, you can amortize or write off the depreciation value of any business machinery that you have been using for more than a year as capital expenditures.

Business owners must apply the Modified Accelerated Cost Recovery System (MACRS) when depreciating company property.

Under the MACRS, there are two ways in which you can depreciate your capital expenditures. The first one is called the General Depreciation System (GDS), and it enables you to depreciate your properties and assets over a shorter time frame. Your deductions will gradually increase over time.

The second method is called an Alternative Depreciation System (ADS), and it entails depreciating equipment at consistent rates annually for a much longer period compared to the number of years allowed in the GDS.

#14. Office Supplies Deduction

You can include office supply expenses in your list of tax deductions for independent contractors, especially if these are tools that you regularly use when operating your business.

These supplies include paper, postage, staples, pens, and books. You may include equipment and professional tools under the office supplies deduction as long as you have not used them for over a year and you itemized the equipment in your returns within the same year that the equipment was purchased.

All office expense deductions must be recorded or itemized on Schedule C, Line 18.

#15. Business Loans & Credit Card Interest Deduction

Interests on bank loans and credit card use must also be incurred for the purposes of running or enhancing your business operations.

For instance, if you used your credit card to pay for your business’s rent and utilities, including your employees’ salaries, meals, and wages, then your credit card interests qualify as tax deductions for independent contractors.

#16. Rent Deduction

Declaring your rent payments as part of your tax deductions for independent contractors differs from deducting home office expenses. In this scenario, you can only deduct rent payments if you are renting offices or workspaces that are not within your home or residential space.

Rent deduction also applies if you borrow or rent equipment to fulfill your job or pay the corresponding fees when you cancel a business lease.

#17. Eliminated & Changed Tax Deductions

Some IRS tax deductions for independent contractors were either revised or removed following the implementation of the Tax Cuts and Jobs Act (TCJA) of 2017.

Some of the independent contractor tax deductions and credits affected by the TCJA include:

• Child tax credit. Initially, the TCJA doubled the child tax credit (CTC) that qualified taxpayers could claim, from $1,000 to $2,000. In 2021, the CTC was increased to $3,600 for children and dependents aged 5 and below, and $3,000 for children aged 6 to 17.

• State and local tax (SALT) deductions. Before the TCJA was signed into law, there were unlimited state and local tax deductions on Schedule A. Post-TCJA, SALT deductions are not capped at $10,000 or $5,000 (for married taxpayers filing separately).

• Standard deductions. The standard deductions for taxpayers also doubled. Single filers can claim $14,600 for 2024 taxes filed in 2025, while married taxpayers filing jointly can claim $29,200 in standard deductions for the 2024 tax year.

• Mortgage interest deductions. Tax deductions based on mortgage loan interests incurred after December 16, 2017, have a new set limit of $750,000 (or $375,000 for married filing separately), a notable drop from the previous $550,000 to $1 million limit pre-TCJA.

Final Thoughts

Tax deductions for independent contractors come in handy, especially since generating income on your own means shouldering all the costs that come with operating your business or promoting your services.

Some of these deductions overlap, so it is important to carefully assess your business expenses and work structure to know which expenses or deductions you can itemize on your Schedule C.

If you need help keeping track of your self-employed expenditures, tax obligations, and write-offs, use our paystub generator to record your earnings and withheld taxes consistently or our invoice generator to outline business costs you can itemize for deductions.