Effective Tax Write-Offs for Successful Solopreneurs

One luxury of being an employee is that you don’t have to worry much about tax planning. You can sit back as your employer withholds money from your paycheck to cover your liabilities, then use the details from your W-2 to file your tax return come tax time.

As a self-employed individual, you don’t have that privilege, and your tax situation becomes a lot more complex. Fortunately, that complexity has a silver lining. You gain a wide range of tax deductions that can significantly reduce your personal income tax.

In fact, you can deduct all ordinary and necessary business expenses. If you’re not sure what those look like, here are some of the most popular tax write-offs for self-employed people. Effective use of these write-offs can help solopreneurs optimize their tax strategy and invest more back into their business.

Top Tax Write-Offs for the Self-Employed

1. Self-Employment Taxes

1. Self-employed individuals must pay both employer and employee portions of Social Security and Medicare taxes. The IRS allows a deduction for the employer portion to reduce taxable income.

1. Retirement Plan Contributions

1. Solo 401(k)s allow self-employed individuals to make higher contributions than traditional plans, reducing taxable income and deferring taxes on earnings.

1. Qualified Business Income

1. The QBI deduction lets eligible business owners deduct 20% of their business income. Due to its complexity, consulting a CPA is advisable.

1. Home Office Expenses

1. Expenses for a home office can be deducted based on the portion of the home used for business.

1. Business Rent

1. Rent for necessary office or retail space is fully deductible.

1. Office Supplies

1. Common office supplies like paper, pens, and printer ink are deductible business expenses.

1. Depreciation

1. Depreciation of business assets over their useful lives allows for deductions spread out over several years.

1. Internet and Phone Bills

1. The portion of internet and phone expenses used for business is deductible.

1. Health Insurance Deduction

1. Health insurance premiums for the self-employed and their families are deductible if not eligible for employer-sponsored coverage.

1. Business Insurance Premiums

1. Necessary business insurance premiums are deductible.

1. Business Meals

1. Business-related meal expenses are 50% deductible, increased to 100% for 2021 and 2022 if from restaurants.

1. Business Travel

1. Travel expenses for business purposes are deductible, but personal travel expenses are not.

1. Business Vehicle Expenses

1. Business-related vehicle expenses can be deducted using the actual expense method or the standard mileage rate.

1. Interest on Business Debts

1. Interest on loans for business purposes is deductible.

1. Advertising Expenses

1. Costs for advertising and promoting the business, including social media ads and website maintenance, are deductible.

1. Professional Services

1. Fees for professional services such as accounting and legal advice are deductible.

1. Continuing Education Costs

1. Education expenses that improve business-related skills are deductible.

1. Professional Dues

1. Dues for maintaining professional licenses and memberships relevant to the business are deductible.

Can You Write Off Clothes for Work When Self-Employed?

Most self-employed individuals can’t deduct clothing costs unless they are necessary and used solely for business. For instance, a self-employed nurse can deduct scrubs, but a suit worn to the office is not deductible.

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