Yearly, freelancers unintentionally hand the IRS extra money than they should just because they overlook deductions they’re absolutely entitled to assert. This breakdown of the 14 key enterprise deductions to pay attention to is designed that can assist you keep away from revenue-boosting blind spots in your freelance enterprise tax return earlier than you file.
It’s simple to overlook bills that qualify as enterprise deductions as a result of the tax code is advanced and consistently shifting. This is the reason it is very important pay attention to modifications which will have an effect on your freelance return and work with a tax skilled who can assist you establish extra alternatives to cut back your taxable earnings and maximize any refund chances are you’ll be entitled to.
As a reminder, in case your freelance enterprise entity is an S-Corp, Partnership, Restricted Legal responsibility Partnership or Multi-member Restricted Legal responsibility Firm your return is due on March 15, 2026. For C-corporations the deadline is April 15, 2026.
Listed below are the important thing freelance enterprise deductions to pay attention to, together with updates from the One Large Stunning Invoice Act (OBBBA) laws from 2025.
1) Residence workplace bills
Deducting your private home workplace stays one of the crucial dependable enterprise deductions accessible to freelancers. Whereas you do not want a separate workplace in your house to assert a deduction, you do want a clearly outlined workspace that you simply use commonly and solely for enterprise.
There are two methods to calculate the house workplace deduction:
- Declare the usual workplace deduction is $1500 which is a topline deduction in your return.
- Alternatively, you’ll be able to take the deduction by calculating the precise sq. footage that’s used solely for enterprise in your house and multiplying it by $5.00 per sq. foot (as much as 300 sq. ft) in addition to deducting a proportional quantity.
2) Medical insurance premiums
Freelancers typically overlook the medical health insurance deduction despite the fact that it will possibly offset a good portion of annual bills. In the event you pay in your personal protection and should not eligible for employer‑sponsored insurance coverage, you might be able to deduct 100% of your premiums.
This consists of medical, dental, and lengthy‑time period care protection for you, your partner, and your dependents corresponding to premiums for medical, dental, and lengthy‑time period care insurance coverage supplied you’ve a internet revenue for the yr and should not eligible for an employer-subsidized plan.
3) Skilled improvement
Freelancers make investments closely in staying present, and the invoice continues to help deductions for coaching that maintains or improves expertise in your current line of labor. The secret’s that schooling should relate on to the companies you already present. When it does, these prices are acknowledged as reputable enterprise bills.
- Programs, workshops, and certifications tied to your present companies
- Books, on-line packages, and trade publications
- Conferences and seminars that help talent improvement
Skilled improvement could improve your incomes potential considerably and it could additionally scale back your tax invoice if the price of the course/written supplies, and many others., qualify for these deductions.
4) Software program and subscriptions
Digital instruments are important to operating a contract enterprise, and the invoice maintains clear deductibility for software program and subscription companies. These recurring prices could seem small, however they add up shortly over the course of a yr.
- Software program subscriptions and cloud storage
- Design instruments, accounting platforms, and venture administration programs
- E-mail advertising companies and paid newsletters
- Documentation of enterprise function for combined‑use instruments
Monitoring these bills ensures your tax return displays the precise price of maintaining your corporation operational. Subscriptions might be deducted instantly within the yr paid. One-time, long-term software program purchases would possibly must be depreciated over 36 months in the event that they final a couple of yr.
5) Cellphone and web bills
For cellphone and web companies, you’ll be able to deduct the enterprise portion. The expectation is an affordable estimate supported by your utilization patterns. You’ll be able to usually deduct:
- A proportion of your cellphone invoice primarily based on enterprise use.
- A proportion of your web invoice primarily based on enterprise use.
Ensure that you’ve documentation of your corporation actions performed by way of these companies corresponding to your assembly calendar, actions requiring web to run your corporation and itemized cellphone payments.
These companies are important to shopper communication, and deducting the enterprise portion is each allowed and anticipated.
6) Enterprise meals
Enterprise meals stay deductible at 50 p.c when they’re straight tied to your work. The foundations emphasize that documentation is a should which implies that it’s essential to maintain itemized receipts and state the shopper identify, enterprise function for the assembly over which you ate the meal and the date on which it occurred.
You too can deduct your personal meals when touring for work so long as the meals is bought at an consuming institution moderately than a comfort retailer or grocery retailer.
7) Mileage and transportation
Even in the event you solely make quick journeys for work, monitoring your mileage all year long can add as much as important deductions. You’ll be able to deduct mileage (The 2025 tax yr mileage fee deduction is 70 cents per mile) and transportation prices for enterprise actions corresponding to:
- Mileage for shopper conferences, conferences, and venture work.
- Parking charges, tolls, and trip share prices for enterprise journey.
- Brief journeys for provides, delivery, or errands.
Whether or not you utilize the usual mileage fee or precise bills, consistency issues in monitoring your mileage so think about using an app to trace it precisely and make it simpler to have the information at hand while you want it for submitting your return.
8) Tools and depreciation
Freelancer enterprise homeowners typically keep in mind to deduct main purchases however overlook smaller instruments which are important to their work. Beneath the One Large Stunning Invoice Act (OBBBA) 100% bonus depreciation for qualifying property positioned in service after January 19, 2025. Whereas bonus depreciation has no restrict, the OBBBA additionally enhanced Part 179 deductions, permitting as much as $2.5 million in rapid expensing for 2025, with a phase-out beginning if purchases exceed $4 million.
Some examples of things thought of needed enterprise property embody:
- Laptops, cameras, microphones, and lighting gear.
- Workplace chairs, desks, and ergonomic equipment.
- Printers, scanners, and associated instruments.
- Autos that exceed 50% enterprise use and are higher than 6,000 kilos. Heavy SUVs and vans are eligible for as much as $31,300 and vehicles are eligible for as much as $20,200 within the first yr.
Recognizing these things as enterprise property helps you replicate the true funding required to ship your companies and will equal substantial tax deductions.
9) Financial institution charges and cost processing prices
Fee platforms make it simple to receives a commission, however the related charges scale back your earnings, nevertheless you’ll be able to offset a few of this with deductions for these prices corresponding to:
- Fee processing charges from PayPal, Stripe, or Sq.
- Month-to-month financial institution prices for enterprise accounts
- Bank card curiosity on enterprise purchases
- Charges tied to enterprise transactions
These small quantities accumulate over time and deducting them ensures your taxable earnings displays your precise earnings. Remember to observe these bills and if accessible, use the statements and tax documentation supplied by these platforms.
Please observe that these charges are tax-deductible provided that they’re incurred for enterprise functions, appearing as an “odd and needed” price of operation, incurred in enterprise accounts. Upkeep charges, wire switch charges, overdraft charges, and returned merchandise charges are usually deductible. Please preserve detailed information of all banking charges to help your deductions. Please maintain detailed information, corresponding to transaction studies out of your PayPal account, for at the least three years to help the deductions in case of an audit.
10) Enterprise-related insurance coverage
Skilled Legal responsibility Insurance coverage premiums for protection corresponding to errors and omissions, enterprise property insurance coverage, and cybersecurity safeguards for your corporation are deductible.
11) Expanded SALT Deduction Cap
The state and native tax (SALT) deduction cap has been elevated from $10,000 to $40,000 for the 2025 tax yr. This cover will improve by 1% yearly by 2029 earlier than reverting to its earlier restrict in 2030. Nonetheless, this profit is phased out for higher-income taxpayers, so not all freelancers will have the ability to take full benefit. For 2025, the complete deduction is offered for these with a modified adjusted gross earnings (MAGI) underneath $500,000. It phases out fully at $600,000 or extra, the place it reverts to a $10,000 restrict.
The cap is decreased by 30% of the quantity by which the taxpayer’s modified adjusted gross earnings exceeds a threshold quantity. That threshold quantity is $500,000 for 2025, with a one p.c improve annually by way of 2029.
For these in high-tax states, this alteration might present significant aid, however it’s crucial to additionally pay attention to how the potential state-level workarounds talked about under would possibly impression you.
12) State-Degree SALT Workaround for Companies
In response to the SALT deduction cap famous above, a number of states have applied workarounds to assist companies mitigate its impression. For instance, New York State has launched the Move-By means of Entity Tax (PTET), which permits companies to pay state taxes on the entity degree moderately than the person degree. PTET permits partnerships and S-corps to pay state taxes on the entity degree, that are absolutely deductible on federal returns.
This workaround allows companies to bypass the SALT cap and doubtlessly scale back their general tax burden. The brand new federal invoice has no impression on these state-level workarounds. Nonetheless, freelancers working pass-through entities ought to at all times monitor the particular developments associated to SALT within the states the place they do enterprise intently.
13) Tip and Extra time Revenue Deductions
Two new deductions have been launched for 2025 tax yr which will profit freelancers working in service-based industries:
- The tip earnings deduction permits as much as $25,000 in tip earnings to be deducted from taxable earnings with out itemizing if married and submitting a married submitting collectively (MFJ) return, whereas the allowable deduction for a single particular person is as much as $12,500. That is particularly helpful for employees in occupations the place tipping is normal (e.g., meals service, hospitality, transportation).
- This deduction phases out at $150,000 in earnings for single taxpayers, and at $300,000 for many who are married submitting collectively.
- The time beyond regulation deduction permits workers (non-exempt, paid time beyond regulation workers primarily based on the Honest Labor Requirements Act (FLAS) who obtain Type W-2) who obtain time beyond regulation pay to deduct as much as $12,500 yearly for single filers, ($25,000 yearly for married submitting collectively), with a phaseout for these with a modified adjusted gross earnings (MAGI) over $150,000 for single filers ($300,000 for married submitting joint filers).This deduction will not be accessible to freelancers. Impartial contractors, freelancers, and gig employees are usually thought of self-employed, not W-2 workers, and are due to this fact not eligible for this particular deduction. Freelancers are answerable for 15.3% in self-employment taxes (Social Safety and Medicare) on all earnings, together with any “additional” hours labored.
Those that obtain Type W-2 as non-exempt workers and have certified time beyond regulation pay (the “half” in “time-and-a-half”) from their federal taxable earnings.
This time beyond regulation deduction has Revenue limits and Section-out begins as follows: the dededuction begins to section out in case your Modified Adjusted Gross Revenue (MAGI) exceeds $150,000 (single) or $300,000 (married submitting collectively).
- Solely the “premium” portion of time beyond regulation (the additional half of “time-and-a-half” pay) is deductible. In the event you earn $20/hr and $30/hr for time beyond regulation, solely the $10/hr premium is deductible. Whereas this reduces federal earnings tax, payroll taxes (Social Safety and Medicare) nonetheless apply to all time beyond regulation earnings. Whereas it’s a deduction from earnings tax, time beyond regulation pay continues to be topic to payroll taxes (FICA). Certified time beyond regulation will likely be listed in Field 14 of the W-2 with the code “FLSA OT Prem” beginning in 2025.
Extra time wages proceed to be topic to federal earnings tax, Social Safety, and Medicare taxes, identical to common wages. Nonetheless, underneath the brand new federal “No Tax on Extra time” provisions, sure taxpayers could now qualify for a deduction on a portion of their time beyond regulation earnings. This deduction applies solely to qualifying time beyond regulation wages and just for taxpayers who fall inside particular earnings thresholds.
Quantities earned above these thresholds will proceed to be taxed as traditional. Extra time is not absolutely tax-free. Social Safety and Medicare taxes nonetheless apply to all time beyond regulation earnings.
There isn’t any particular time beyond regulation tax fee; time beyond regulation continues to be taxed as odd earnings inside your current tax bracket so you’ll want to retain any documentation associated to reporting of wages, together with time beyond regulation. In the event you discover any discrepancies in your pay stubs or year-end paperwork, contact your employer (in the event you even have a W-2 place) and/or purchasers (in the event you obtain a 1099) promptly to appropriate them.
These deductions are relevant to all tip and time beyond regulation earnings from 2025 and the availability is at the moment set to run out after 2028 so freelancers in eligible enterprise industries ought to benefit from them whereas they final.
Different for Freelancers
Whereas freelancers can not use the “No Tax on Extra time” deduction, they will nonetheless scale back their tax legal responsibility by way of different strategies that we focus on within the 14 factors, corresponding to:
- Enterprise Bills: Deduct reputable enterprise bills, corresponding to software program, {hardware}, or residence workplace prices, to decrease taxable earnings.
- QBI Deduction: Eligible self-employed people could deduct as much as 20% of their Certified Enterprise Revenue (QBI).
- Self-Employment Tax Deduction: You’ll be able to deduct 50% of your self-employment tax when calculating your federal earnings tax.
For 2025, employers should not required to interrupt out time beyond regulation individually on W-2s, so chances are you’ll want to make use of paystubs to calculate your eligible quantity.
14) Certified Enterprise Revenue (QBI) Deduction
The OBBB made everlasting the extension of the 20% Certified Enterprise Revenue (QBI) deduction (Part 199A deduction) for pass-through earnings. In the event you function as a sole proprietor, LLC, or S-corporation, you’ll be able to proceed to deduct as much as 20% of your certified enterprise earnings, plus 20 p.c of certified actual property funding belief (REIT) dividends and certified publicly traded partnership (PTP) earnings topic to earnings thresholds and enterprise kind. Revenue earned by way of a C company or by offering companies as an worker will not be eligible for the deduction. What qualifies as a commerce or enterprise, is specified within the directions for Type 8995-A or Type 8995.
The deduction is offered no matter whether or not taxpayer itemizes on Schedule A or takes the usual deduction. There are two components to this deduction:
(1) QBI part – equal to twenty% of QBI from a home enterprise operated as a sole proprietorship or by way of a partnership, S company, belief or property. It’s topic to limitation, relying on taxable earnings which can embody the kind of commerce or enterprise, the quantity of W-2 wages paid by the certified commerce or enterprise, and the unadjusted foundation instantly after acquisition (UBIA) of certified property held by the commerce or enterprise. It might be decreased by the patron discount if the taxpayer is a patron of an agricultural or horticultural cooperative.
(2) REIT/PTP part – equal to twenty% of certified REIT dividends and certified PTP earnings and Will not be restricted by W-2 wages or UBIA of certified property. Relying on taxable earnings, the quantity of PTP earnings that qualifies could also be restricted relying on the kind of the PTP’s commerce or enterprise. The deduction is proscribed to the lesser of the QBI part plus the REIT/PTP part or 20 p.c of the taxpayers’ taxable earnings minus internet capital achieve.
QBI is the web quantity of certified objects of earnings, achieve, deduction, and loss from any certified commerce or enterprise, together with earnings from partnerships, S companies, sole proprietorships, and sure trusts. This consists of the deductible a part of self-employment tax, self-employed health-insurance, and deductions for contributions to certified retirement plans corresponding to SEP, SIMPLE and certified plan deductions, simply to record a couple of of things which are included within the calculation.
QBI doesn’t embody objects which are: not property includable in taxable earnings, investments corresponding to capital beneficial properties or losses, curiosity earnings that isn’t correctly allocable to a commerce or enterprise, wage earnings, earnings that isn’t successfully related with the conduct of enterprise throughout the US, commodities transactions or international forex beneficial properties or losses, sure dividends and funds in lieu of dividends, earnings/loss or deductions from notional principal contracts, annuities (except acquired in reference to the commerce or enterprise), quantities acquired as cheap compensation from an S company, quantities acquired as assured funds from a partnership, funds acquired by a associate for companies apart from in a capability as a associate, certified REIT dividends, and PTP earnings.
A protected harbor is offered to people and homeowners of passthrough entities who search to assert the deduction underneath part 199A with respect to a rental actual property enterprise. Beneath the protected harbor a rental actual property enterprise will likely be handled as a commerce or enterprise for functions of the QBI deduction if sure standards are met. For extra info on the protected harbor, see Information Launch IR-2019-158
An curiosity in rental actual property that doesn’t meet the necessities of the protected harbor should still be handled as a commerce or enterprise for functions of the QBI deduction if it in any other case is a bit 162 commerce or enterprise.
As well as, the rental or licensing of tangible or intangible property that doesn’t rise to the extent of a bit 162 commerce or enterprise is however handled as a professional commerce or enterprise for functions of part 199A if the rental or licensing of property is to a generally managed commerce or enterprise operated by the person or a passthrough entity as supplied in Treas. Reg. § 1.199A-1(b)(14).
The QBI deduction has been a significant profit for freelancers since its introduction in 2018, and its permanence provides much-needed stability to long-term freelance enterprise tax planning.
Mitigate Your Tax Burden with Most Enterprise Deductions
The important thing to maximizing your deductions is consciousness and documentation. Once you perceive what qualifies and maintain good information all year long, tax season turns into much less hectic and extra rewarding.
A tax skilled who understands the freelance panorama may enable you uncover deductions chances are you’ll not notice you’re entitled to. With the correct steerage and slightly additional consideration to element, you’ll be able to ensure you’re maintaining extra of what you earn and paying the IRS solely what you legitimately owe.
