Top Tax Deductions for Contractors and Freelancers

Being your own boss has lots of perks – setting your own hours, choosing your clients, and working in your pajamas (sometimes!). But when tax time rolls around, many contractors and freelancers start to sweat. The good news? Working for yourself comes with tons of tax deductions that can save you serious money.

This guide breaks down the top tax deductions available to contractors and freelancers in simple, easy-to-understand language. We’ll show you how to keep more of your hard-earned money in your pocket and less in Uncle Sam’s.

16 Tax Deductions To Consider in 2025

1. Self-Employment Tax Deduction

When you work for yourself, you pay both the employer and employee portions of Social Security and Medicare taxes. This is called the self-employment tax, and it’s 15.3% of your net earnings. That’s a big chunk of money!

The good news is that you can deduct half of your self-employment tax on your personal tax return. This isn’t a business expense deduction, but rather an adjustment to your income. The IRS automatically calculates this for you when you file Schedule SE.

For example, if you owe $3,000 in self-employment tax, you can deduct $1,500 from your taxable income. If you’re in the 22% tax bracket, that’s a savings of $330!

For a broader overview of tax strategies, check out our comprehensive guide on Tax Deduction Tips for Small Business.

2. Home Office Deduction

If you regularly use part of your home exclusively for your business, you may qualify for the home office deduction. There are two ways to calculate this deduction:

Simplified Method: Deduct $5 per square foot of your home used for business, up to 300 square feet ($1,500 maximum).

Regular Method: Calculate the percentage of your home used for business, then apply that percentage to home-related expenses like rent, utilities, insurance, repairs, and depreciation.

To qualify, your home office must be:

• Used regularly and exclusively for business
• Your principal place of business

Your “office” doesn’t have to be a whole room—it could be a dedicated corner of your living room or a portion of your basement, as long as it’s used only for work.

3. Cell Phone and Internet Bills

If you use your phone and internet for business, you can deduct a portion of these costs. The key is to only deduct the percentage used for business purposes.

For example, if you use your cell phone 60% for business and 40% for personal calls, you can deduct 60% of your phone bill. The same goes for your home internet service.

Keep records of how much you use these services for business versus personal use. Even a simple log kept for a few typical weeks can help establish a reasonable business-use percentage.

4. Insurance

Many types of insurance related to your business are fully deductible:

• Business liability insurance
• Commercial property insurance
• Professional liability/errors and omissions insurance
• Business interruption insurance
• Cyber liability insurance

Health insurance is a special case. If you’re self-employed, you can deduct 100% of your health insurance premiums (including dental and vision) for yourself, your spouse, and your dependents. This is an adjustment to income rather than a business expense.

5. Travel Expenses

When you travel away from your tax home (your regular place of business) overnight for business purposes, many expenses become deductible:

• Transportation (flights, trains, etc.)
• Lodging
• 50% of meal costs
• Taxis or rideshares
• Car rentals
• Dry cleaning and laundry
• Business calls

The trip must be primarily for business, not pleasure. If you mix business and pleasure, you can only deduct the business portion.

Understanding your tax obligations is critical for contractors. For more information about tax filing, see our guide on Schedule C Filing: A Step-by-Step Guide for Independent Contractors.

6. Advertising

Good news! Nearly all advertising and marketing costs for your business are fully deductible:

• Business cards and brochures
• Website design and maintenance
• Social media advertising
• Online ads (Google, Facebook, etc.)
• Print advertising
• Sponsorships related to your business
• Search engine optimization (SEO)
• Email marketing services

This is one area where the IRS is pretty generous, so don’t overlook any expenses related to promoting your business.

7. Meals

You can deduct 50% of the cost of business meals if:

• The meal is directly related to your business
• You’re present at the meal
• The expense isn’t lavish or extravagant
• You keep proper documentation

For 2021 and 2022, the IRS temporarily allowed a 100% deduction for food and beverages from restaurants, but this has returned to 50% for 2023 and beyond.

Remember to keep receipts and note who you dined with and what business was discussed.

8. Vehicle Expenses

If you use your car for business (other than commuting), you have two options for deducting vehicle expenses:

Standard Mileage Rate: For 2023, deduct 65.5 cents per business mile driven. This is the simplest method but requires tracking your business mileage.

Actual Expense Method: Deduct the business percentage of actual costs including gas, insurance, repairs, depreciation, lease payments, etc. This requires more detailed record-keeping but might result in a larger deduction.

Whichever method you choose, keep a detailed mileage log with dates, destinations, purpose, and miles driven for each business trip.

9. Interest Expenses

Interest on business loans, credit cards used for business expenses, and other business debt is generally deductible. This includes:

• Business credit card interest
• Business loan interest
• Interest on equipment financing
• Line of credit interest

Remember that only the interest on business purchases is deductible, not personal expenses. Keep your business and personal finances separate to make this easier to track.

10. Dues and Publications

You can deduct professional memberships and subscriptions related to your industry:

• Professional association dues
• Chamber of Commerce membership
• Trade publication subscriptions
• Industry-specific books
• Professional database access fees
• Subscription-based software relevant to your field

These costs are fully deductible as long as they’re ordinary and necessary for your business.

11. Education Expenses

Investing in your professional development? Those costs may be deductible if they maintain or improve skills needed in your current business:

• Workshops and seminars
• Online courses
• Conferences
• Webinars
• Professional certifications
• Continuing education

However, education that qualifies you for a new trade or business isn’t deductible.

12. Retirement Plan Contributions

Self-employed individuals have several retirement plan options that offer tax advantages:

• Solo 401(k): Contribute up to $66,000 in 2023 ($73,500 if age 50+)
• SEP IRA: Contribute up to 25% of net self-employment income (max $66,000 in 2023)
• SIMPLE IRA: Contribute up to $15,500 in 2023 ($19,000 if age 50+)
• Traditional IRA: Contribute up to $6,500 in 2023 ($7,500 if age 50+)

These contributions reduce your taxable income while helping you save for retirement—a double win!

For contractors dealing with complex income sources, our article on What Percentage of Income Should Small Businesses Set Aside for Taxes? provides valuable guidance.

13. Business Licenses and Taxes

Various business taxes, fees, and licenses are deductible:

• Business licenses
• Regulatory fees
• Local business taxes
• Professional licenses
• Permits
• Business property taxes

Note that federal income taxes and the employer portion of self-employment tax are not deductible.

14. Business Startup Costs

Starting a new business? You can deduct up to $5,000 in startup costs in your first year of business. Costs exceeding $5,000 must be amortized (deducted gradually) over 15 years.

Startup costs include:

• Market research
• Business planning
• Advertising before opening
• Training employees
• Legal and accounting fees related to forming your business

These deductions only apply to costs incurred before your business actually begins operations.

15. Equipment Depreciation

When you buy business equipment or furniture, you have several options:

Section 179 Deduction: Deduct the full cost of qualifying equipment in the year of purchase (up to $1,160,000 in 2023).

Bonus Depreciation: Deduct 80% of the cost in 2023 (gradually phasing down in future years).

Regular Depreciation: Deduct the cost over the item’s useful life (typically 5-7 years for most business equipment).

For example, if you buy a $2,000 computer for your business, you could potentially deduct the entire $2,000 in the year of purchase using Section 179.

16. Legal, Accounting, and Tax Services

Professional services related to your business are fully deductible:

• Accountant and bookkeeper fees
• Tax preparation costs (for the business portion)
• Attorney fees for business matters
• Payroll service fees
• Consulting fees

Even the cost of tax software used for your business tax return is deductible!

Real-World Example: Sarah’s Freelance Design Business

Sarah runs a graphic design business from home and was shocked when she owed $8,500 in taxes her first year.

After learning about tax deductions, she started tracking all her business expenses carefully. She deducted her home office (a dedicated room in her apartment), 75% of her internet costs, her design software subscriptions, her new laptop (using Section 179), and half of her self-employment tax. She also opened a SEP IRA and contributed $10,000.

These legitimate deductions reduced her taxable income by over $30,000, saving her approximately $6,600 in taxes—money she used to invest back into growing her business.

Understanding how your contractor income is taxed is essential.

For more information, see our guide on Understanding 1099 vs W2 Income: Which Is Better for Your Situation?.

4 Tips for Self-Employed Tax Deductions

1. Separate Business and Personal

Keep your business and personal finances completely separate:

• Open a business checking account
• Get a business credit card
• Pay yourself from your business account
• Never use your business card for personal expenses

This separation makes tax time easier and helps protect your deductions if you’re audited.

2. Keep Great Records

Good record-keeping is crucial for maximizing deductions:

• Save all receipts (digital or physical)
• Use accounting software to track expenses
• Record business miles driven
• Note business purpose for expenses
• Keep records for at least 7 years

When in doubt, keep the receipt. It’s better to have documentation you don’t need than to need documentation you don’t have.

3. “Is this an Ordinary and Necessary Business Expense?”

The IRS allows deductions for “ordinary and necessary” business expenses. Before claiming a deduction, ask yourself:

• Is this common in my industry? (ordinary)
• Is this helpful and appropriate for my business? (necessary)

If you can answer “yes” to both, the expense is likely deductible.

If you work with contractors yourself, you’ll need to understand special tax rules. Our article on Independent Contractor 1099 Form: Complete Guide for Tax Filing can help.

4. Paperwork and Deadlines

Stay on top of tax deadlines to avoid penalties:

• Pay quarterly estimated taxes (April 15, June 15, September 15, January 15)
• File your annual return by April 15 (or request an extension)
• Submit any required 1099 forms by January 31
• Keep track of state and local filing requirements

Missing deadlines can result in penalties and interest, which aren’t deductible!

The Best Way to Send Tax Documents (and Payments) to Contractors

If you hire other contractors, you’ll need to send them 1099 forms. Our Invoice Maker tool can help you track payments to contractors throughout the year, making tax season much easier.

With proper documentation of payments, you can deduct the cost of contractors you hire, further reducing your tax bill.

For more detailed information about quarterly tax obligations, check out our guide on Quarterly Estimated Taxes: How to Calculate and Avoid Penalties.

Final Thoughts

Tax deductions are like finding money that was already yours. As a contractor or freelancer, you work hard for every dollar you earn—and these deductions help you keep more of those dollars in your pocket.

The key is to be thorough but honest. Claim every legitimate deduction you’re entitled to, but don’t stretch the truth. Keep good records, understand what qualifies, and when in doubt, consult a tax professional.

Remember that tax laws change frequently, so stay informed about current deduction limits and rules. With some planning and good record-keeping, you can significantly reduce your tax bill while staying completely within the law.

Spending a little time learning about tax deductions now can save you thousands of dollars over the life of your business. That’s money you can use to grow your business, save for retirement, or simply enjoy the fruits of your labor!