A tax deduction (or “tax write-off”) is an expense that you can deduct from your taxable income. You take the amount of the expense and subtract that from your taxable income. Essentially, tax write-offs allow you to pay a smaller tax bill. But the expense has to fit the IRS criteria of a tax deduction.
Below you’ll find a comprehensive list of write-offs commonly available to self employed businesses that are organized as sole proprietorships or partnerships. Some of these are directly related to running a business, and some are more personal deductions that a small business owner should be aware of.
Further reading: Tax Credit vs Tax Deduction: What’s the Difference?
Tax deduction savings
Making the most of all your available tax deductions can save you hundreds—even thousands—of dollars at tax time.
Let’s look at an example.
Joe is a self-employed writer and had $60,000 in self employment income in 2022. He has to pay 15.3% self employment (SE) tax plus income tax based on his individual tax rate. The SE tax on $60,000 is $8,478 (generally only 92.35% of SE income is subject to SE tax) and the income tax is $4,865, for a total of $13,343.
(For simplicity, we assumed Joe is single with no children and no other types of taxable income to consider.)
In early 2023, Joe joined Bench and his bookkeeper located $6,000 worth of contractor expenses that he was not aware of. These expenses count as tax deductions and reduce his net self employment income to $54,000.
Now, with $54,000 in taxable self employment income, he pays $7,630 in SE tax and $4,200 in income tax, for a total of $11,830.
Adding the additional business expenses saved Joe over $1,500 in taxes!
By locating the $6,000 in contractor expenses, Bench was able to reduce Joe’s tax liability by over $1,500 dollars. A nice saving he can use to upgrade his laptop this year.
Repeat this for all the available deductions Joe had expenses for, and he can significantly reduce the income he has to pay taxes on—saving him thousands of dollars.