Self-Employed Tax Deductions Worksheet (2024)

FAQs

How to calculate self-employment tax deduction? ›

Generally, the amount subject to self-employment tax is 92.35% of your net earnings from self-employment. You calculate net earnings by subtracting ordinary and necessary trade or business expenses from the gross income you derived from your trade or business.

To get the biggest tax refund possible as a self-employed (or even a partly self-employed) individual, take advantage of all the deductions you have available to you. You need to pay self-employment tax to cover the portion of Social Security and Medicare taxes normally paid for by a wage or salaried worker's employer.

By taking a business deduction instead of an itemized deduction, you reduce your adjusted gross income (AGI) and your self-employment tax. Whenever possible, it's best to deduct an expense or a portion of an expense as a business expense rather than an itemized deduction, as this generally increases your tax savings.

The qualified business income (QBI) deduction generally lets qualified self-employed people write off up to 20% of the combined total of their business's income, gains, deductions, and losses. (It's sometimes called the Section 199A deduction, after the tax code section authorizing the tax break.)

You're allowed to deduct 50% of what you pay in self-employment tax as an income tax deduction on Form 1040. This deduction is available whether or not you itemize deductions.

Deduction for Taxable Income Up to $182,100 ($364,200 if Married) For 2023, the threshold is taxable income up to $364,200 if married filing jointly, or up to $182,100 if single. If your income is within this threshold, your pass-through deduction is equal to 20% of your qualified business income (QBI).

For 2021, taxpayers can use either their 2021 or 2019 income to maximize the credit. If you're a college student or supporting a child in college, you may be eligible to claim valuable education credits. The American Opportunity Credit is refundable up to $1,000.

Yes, you can write off the interest on a car loan if it's used for business purposes. You'll need to use the actual expense method to deduct this expense and you can only write off the business use portion of the interest. Also, keep in mind that your principal payments aren't deductible.

Which filing status gives the biggest refund? ›

If you're able to file as a head of household it could give your refund a significant boost. For example, heads of household get a larger standard deduction than single filers.

Nevertheless, independent contractors are usually responsible for paying the Self-Employment Tax and income tax. With that in mind, it's best practice to save about 25–30% of your self-employed income to pay for taxes.

Share: If you're a sole proprietor, you can deduct ordinary and necessary business meals and entertainment expenses. However, these expenses must be directly related to or associated with your business. If you're an employee, you can deduct these only to the extent your employer doesn't reimburse you.

But in some situations your loss is limited. See Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C), for more information. You have to file an income tax return if your net earnings from self-employment were $400 or more.

With that in mind, it's best practice to save about 25–30% of your self-employed income to pay for taxes. And, remember, the more deductions you find, the less you'll have to pay.

To file your annual income tax return, you will need to use Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), to report any income or loss from a business you operated or profession you practiced as a sole proprietor, or gig work performed.

The 15.3% tax seems high, but the good news is that you only pay self-employment tax on net earnings. This means that you can first subtract any deductions, such as business expenses, from your gross earnings. One available deduction is half of the Social Security and Medicare taxes.