23 tax breaks for the self employed


Written by:

There are many tax breaks for small businesses—and we bet you want to know all of them to help reduce your tax liability and keep more money in your small business. 

We’ve pared down 23 of the highest impact and most generous tax deductions and write-offs available to small businesses in 2023, examples of each, and how much you can deduct.

While small business owners are busy running the business and managing cash flow, it’s important to carve out a little time to ensure you keep as much money as possible in your pocket. That’s where we come in.

Image Credit: Pekic/istockphoto.

1. Startup costs

  • Amount:  Up to $5,000

Small business owners may take a startup cost deduction of up to $5,000 in startup costs in their first year of business. This can include legal fees, employee training, and market research.

You can only take this $5,000 deduction ‌if your total startup costs are $50,000 or less. If your startup costs exceed $50,000, you’ll see a reduction in your allowable deduction. If your startup costs are over $55,000, you won’t be able to take the deduction.

Image Credit: CentralITAlliance/istockphoto.

2. Home office

  • Amount: Depends on the method you use

​​Small business owners who work from home or have a dedicated home office can take this deduction. The deduction amount depends on the percentage of the home you use for business purposes. There are two methods for determining your home office deduction: Simplified method 

This method is the easiest for home office deductions. You can deduct $5 per square foot of your home office space, but only up to $1,500. So, even if your home office is over 300 square feet ($5 x 300 square feet = $,1500), you can only take $1,500 as a deduction.

Your home office deduction for the simplified method is:

Square feet of your home office x $5 

Standard method

The standard method is a bit more complicated, but it also means you can deduct more expenses. With the standard home office deduction, you’ll need to keep track of all your home expenses. This includes the cost of home repairs and upkeep, as well as rent and utilities. 

For this method, your allowable deduction would be: 

(Square feet of your home office / total home square feet) x home expenses

For example, say your home office is 300 square feet and your home is 1,500 square feet. Your total home expenses for the year were $10,000. Your deduction using this method would be $2,000, or (300 / 1,500) x $10,000.

Image Credit: Charday Penn/istockphoto.

3. Retirement plan contributions

  • Amount: Varies by the plan you have 

Making contributions to retirement accounts is a smart move for your financial future —and they are business write offs.. The amount you can deduct depends on the type of plan you have or set up. For example, the limits for 2023 are:

  • 401(k) plans: $22,500 ($30,000 if you’re 50 or older)
  • Simple IRAs: $15,500 ($19,000 if you’re 50 or older) 
  • Traditional IRAs: $6,500 ($7,500 if you’re 50 or older) 

Matching contributions—those made to your employees’ accounts—are tax deductible, to a limit. The total limit for a 401(k), including employee and employer contributions, is $66,000 for 2023 ($73,500 if you’re 50 or older).

Image Credit: BrianAJackson/istockphoto.

4. Depreciation

  • Amount: 100% of the depreciation expense 

Depreciation is a tax break that allows businesses to write off the cost of certain assets over time. This can include equipment, vehicles, and property. 

For most assets, nearly the entire purchase price is tax deductible over time. By spreading out the cost of these assets over several years, businesses can reduce their taxable income and lower their tax bill.

Image Credit: shih-wei/istockphoto.

5. Health insurance

  • Amount: 100%

Small businesses can deduct the entire cost of health insurance premiums for their employees as business expenses for taxes. To be deductible, however, employers must generally pay 50% or more of their employees’ premiums.

Self-employed individuals, including independent contractors, freelancers, and sole proprietors, can also deduct 100% of the health insurance premiums they pay for themselves and their families.

Image Credit: Andres Victorero/istockphoto.

6. Meals

  • Amount: 50% or 100% 

​​Meals can also be small business deductions—but it’s either 50% or the entire tab. Meals for employees and company-wide social events are 100% tax deductible, such as food for holiday parties. 

Business meals are 50% tax-deductible for clients or prospects. The meal must be business-related, reasonably priced, and you or an employee must be present. 

Note that entertainment expenses are no longer tax-deductible. Meals at entertainment events are still tax deductible if bought separately.

Image Credit: filadendron/istockphoto.

7. 1099 deductions

  • Amount: 100%

1099 tax deductions can be for small business owners or self-employed individuals. These 1099 write offs can reduce your tax liability, whether you’re an owner or a freelancer.

If you hire a contractor or freelancer, you can deduct the entire cost. Say you pay a freelancer $1,500 for work on your website. The entire $1,500 is fully tax-deductible.

If you’re a freelancer or contractor who receives a 1099-NEC, you may be eligible for certain 1099 deductions, such as claiming part of your self-employment tax as a deduction.

Image Credit: hapabapa/istockphoto.

8. Travel

  • Amount: 100%

If you need to travel out of town for business, the cost of getting to and from your destination is tax-deductible. Lodging expenses are also 100% tax-deductible. 

Travel tax deductions include: 

  • Plane tickets
  • Hotels 
  • Rental car costs
  • Parking fees
  • Cost of taxis or ride-sharing

The primary purpose of your trip must be business. You may engage in leisure activities on the trip, but business must be the main reason for the trip. You should also keep records of your business travel expenses, including receipts, invoices, or other documents showing your expenses.

Image Credit: pabst_ell/istockphoto.

9. Gifts

  • Amount: Up to $25 per person

Gifts for clients, customers, and employees are deductible business expenses. But there’s a catch—the limit is $25 per person each year. Promotional items with your company’s name, such as calendars or pens, don’t count toward that limit if they cost $4 or less.

Image Credit: miniseries/istockphoto.

10. Bad debt

  • Amount: 100% 

Small businesses that cannot collect a debt can write it off and get a tax deduction. It has to be a business debt—not a personal one. This can include loans to employees, suppliers, or customers. As well as uncollectible accounts receivables.

Image Credit: bernie_photo/istockphoto.

11. Education

  • Amount: 100% 

The IRS offers tax breaks for small businesses that pay for education expenses. To qualify for the education deduction, the costs must add value to the business and improve or maintain necessary skills.

Tax deductions examples for valid education expenses include:

  • Classes
  • Workshops
  • Seminars
  • Publication subscriptions
  • Books

However, general education courses unrelated to the business or an employee’s role typically won’t qualify for this small business tax deduction.

Image Credit: Rockaa/istockphoto.

12. Auto expenses

  • Amount: 100% or percent of vehicle usage

Small business owners can deduct auto expenses, even if it’s their own car. If the vehicle is solely for business use, all costs are tax-deductible. If it’s for business and personal activities, the standard mileage rate or actual expenses method will determine the deduction amount.

Standard mileage rate

The standard mileage rate is the easiest. You track your miles and multiply that by the IRS standard mileage rate. For 2023, the rate is $0.655 per mile

For example, if you used your personal vehicle to drive 5,000 miles for business, your deduction would be $327.50, or 5,000 x $0.655. 

Actual expenses

The actual expenses method means you track all vehicle-related expenses, such as insurance, fuel, and maintenance. You’ll also track your miles driven for business. Your deduction amount will be the total expenses for your car multiplied by the percentage of business-related miles. 

Total vehicle expenses x (business miles / total miles)

Image Credit: FG Trade/istockphoto.

13. Taxes

  • Amount: 100%

Any business-related taxes you pay are tax deductible. This includes taxes you pay for payroll, such as Social Security and Medicare taxes. 

Other examples include:

  • State and local income tax
  • Sales tax for business purchases 
  • Real estate tax for business property 

Note that certain business taxes are not tax-deductible, including estate and gift taxes, as well as federal income taxes.

Image Credit: Daenin Arnee/istockphoto.

14. Childcare

  • Amount: 0% 

Childcare expenses are generally not tax-deductible business expenses. However, employers that provide childcare can get tax credits if they meet certain requirements. 

To qualify for these credits, the employer must ensure ‌childcare providers meet state licensing requirements. The childcare must also be necessary for the employee to work.

Image Credit: Caiaimage/Robert Daly/istockphoto.

15. Charitable contributions

  • Amount: Generally 0% 

There are tax breaks available for small businesses that make charitable contributions. But it depends on if you can deduct 100% or 25%. 

Small business owners can deduct: 

  • 100% of charitable contributions if it’s on their personal taxes. Small business owners that run sole proprietorships, partnerships, or limited liability companies (LLCs) can take advantage of this. 
  • 25% of the contribution is deductible if the business operates as a corporation.

Image Credit: hobo_018/istockphoto.

16. Marketing and advertising

  • Amount: 100%

​​Business marketing costs for small businesses are fully tax-deductible. This includes expenses for campaigns to generate or retain customers.

Examples of deductible advertising costs include:

  • Ads on social media platforms
  • Newspaper and TV ads
  • Sponsoring events or conferences

To claim the deductions, business owners must keep records of all marketing expenses including receipts, invoices, and payments to verify the costs.

Image Credit: P. Kijsanayothin/istockphoto.

17. Rent and utilities

  • Amount: 100%

​​Rent payments for business properties, such as office, storage, or warehouse space are tax-deductible. If you have an agreement to buy the property at some point, you cannot deduct rent payments.

The property must be exclusively for business purposes.  If you use any part of the property for personal purposes, the rent payments may not be fully deductible.

Image Credit: Drazen Zigic/istockphoto.

18. Subscriptions

  • Amount: 100%

Subscriptions you have as part of your business are 100% tax deductible. This includes subscriptions to software services, trade publications, and online resources that are necessary for your business. 

Common software subscriptions that your business can deduct include:

  • Project management tools
  • Cloud storage
  • Accounting software

Most business subscriptions are ordinary and necessary costs of operating a company. They can include membership dues as well.

Image Credit: PonyWang/istockphoto.

19. Interest

  • Amount: 100%, up to 30% of taxable income

Interest your business pays on debt, such as loans or credit cards, is tax-deductible. Your business must be legally liable for the debt. Businesses with revenue of $27 million or less can deduct 100% of their interest expenses. 

For all others, there is a limit on the tax deductibility of interest expenses. The deduction cannot be above 30% of your taxable income. Say your business has a taxable income of $50,000 and pays $25,000 in interest, you can only deduct $15,000 ($50,000 x 30%).

Image Credit: SDI Productions/istockphoto.

20. Salaries and wages

  • Amount: 100%

Small business owners can deduct the entire cost of paying employees. This includes salaries, wages, bonuses, and benefits. However, salaries must be reasonable and ordinary. 

In order to qualify for deducting employee compensation costs, small business owners must properly document all payments, including keeping detailed records of hours worked, pay rates, and any additional benefits or bonuses.

Image Credit: amenic181/istockphoto.

21. Legal and professional fees

  • Amount: 100%

All of your legal fees as a small business owner are tax-deductible, assuming they’re necessary for your business.

Deductible legal fees can be for such things as:

  • Tax issues
  • Discrimination claims
  • Business sales

Legal fees unrelated to your business, such as those for personal matters or hobbies, are not deductible.

Image Credit: William_Potter/istockphoto.

22. Internet and phone

  • Amount: 100%

Phone and internet expenses for small businesses are eligible for deductions. All phone or interest usage for your business is tax deductible. If you use your phone and internet for both personal and business, only business-related use is deductible.

Image Credit: mixetto/istockphoto.

23. Business insurance

  • Amount: 100%
  • Business insurance premiums are 100% deductible. This includes all types of insurance you may need to run your business.

    Examples of eligible insurance include: 

    • Liability
    • Workers’ compensation
    • Auto
    • Property

    Stay on top of your business taxes—download the small business tax deductions checklist below. It includes a tax deductions list and a list of deductible business expenses.

Image Credit: PeopleImages/istockphoto.

How to take advantage of tax breaks

Figuring out how to write off business expenses doesn’t have to be difficult. Being a small business owner is stressful enough. Tax breaks for small businesses provide valuable cash to reinvest in your business. But staying on top of new tax breaks and tracking deductions can be time-consuming. 

This article originally appeared on the Quickbooks Resource Center and was syndicated by MediaFeed.org.

Image Credit: katleho Seisa/istockphoto.

More from MediaFeed

This is where air conditioning costs the most in the US

Image Credit: Lazy_Bear/istockphoto.