💰 WEDNESDAY WISDOM: Self-Employed? Don't Miss These Year-End Deductions!
- sarahicenteno27
- Nov 12
- 7 min read
The Bottom Line: Self-employed professionals often pay more in taxes than they should simply because they don't know about all the deductions available to them. These six commonly overlooked deductions can save you $5,000 to $15,000 or more annually—but only if you claim them before December 31st!
Why Self-Employed Tax Planning Matters More Than Ever
If you're self-employed, you already know that tax time feels different than when you were a W-2 employee. You're paying both the employer and employee portions of Social Security and Medicare taxes (that's 15.3% right off the top), you're responsible for quarterly estimated payments, and you don't have an employer withholding taxes throughout the year.
But here's the silver lining: self-employed individuals have access to powerful deductions that W-2 employees don't. The challenge? Many freelancers, contractors, and small business owners don't know these deductions exist or don't understand how to claim them properly.
With less than two months left in 2025, now is the perfect time to maximize these deductions and dramatically reduce your tax bill.
Deduction #1: Health Insurance Premiums (100% Deductible!)
✨ What It Is:
If you're self-employed and pay for your own health insurance, you can deduct 100% of the premiums you pay for yourself, your spouse, and your dependents—even if you don't itemize deductions.
Why This Matters: This is an "above-the-line" deduction, meaning it reduces your adjusted gross income (AGI) before you even get to the standard or itemized deduction. Lower AGI can qualify you for other tax benefits too.
What's Covered:
Medical insurance premiums
Dental insurance premiums
Vision insurance premiums
Qualified long-term care insurance (with limits)
💡 Pro Tip: If you're also eligible for an employer-sponsored plan through a spouse's job, you can only deduct the months when you (or your spouse) weren't eligible for that coverage.
Potential Savings: If you're paying $800/month for family health insurance, that's $9,600 in deductions. At a 24% tax bracket, that saves you approximately $2,304 in federal taxes alone!
Deduction #2: SEP IRA or Solo 401(k) Contributions
✨ What It Is:
Self-employed individuals can make tax-deductible contributions to retirement accounts specifically designed for business owners. These contributions reduce your taxable income dollar-for-dollar while building your retirement savings.
Your Options:
Retirement Plan | 2025 Contribution Limit | Best For |
SEP IRA | Up to 25% of net self-employment income or $69,000 (whichever is less) | Simple setup, flexible contributions |
Solo 401(k) | $23,000 employee contribution + up to 25% employer contribution = Max $69,000 total ($76,500 if 50+) | Maximum contributions, especially if 50+ |
Traditional IRA | $7,000 ($8,000 if 50+) | Simple option for lower earners |
💡 Pro Tip: You have until your tax filing deadline (including extensions) to make SEP IRA contributions for 2025. That means you could contribute as late as October 15, 2026, if you file an extension—but Solo 401(k) employee deferrals must be made by December 31st!
Real-World Example: Let's say you're 45 years old with $150,000 in net self-employment income. You could contribute:
SEP IRA: Up to $37,500 (25% of income)
Solo 401(k): $23,000 (employee) + $37,500 (employer) = $60,500 total
At a 32% tax bracket, that Solo 401(k) contribution saves you approximately $19,360 in federal taxes!
Deduction #3: Half of Your Self-Employment Tax
✨ What It Is:
When you're self-employed, you pay both the employer and employee portions of Social Security and Medicare taxes (15.3% total). The good news? You can deduct the employer portion (50%) as an adjustment to income.
How It Works:
Self-employment tax is 15.3% on your net business income (up to the Social Security wage base)
You automatically deduct 50% of this on your tax return
This is an above-the-line deduction that reduces your AGI
Your tax software typically calculates this automatically
Real-World Example: If your self-employment tax is $10,000, you automatically get a $5,000 deduction. At a 24% tax bracket, that's an additional $1,200 in tax savings.
💡 Pro Tip: This deduction happens automatically when you file Schedule SE with your tax return—you don't need to do anything special to claim it. Just make sure you're actually reporting self-employment income!
Deduction #4: Business Use of Your Phone and Internet
✨ What It Is:
If you use your cell phone and internet for business purposes, you can deduct the business-use percentage of these expenses. Many self-employed people miss this deduction entirely!
What You Can Deduct:
Cell phone service (monthly plan)
Internet service for your home office
Business-related phone apps and services
Landline if used for business
How to Calculate:
Determine the percentage of business vs. personal use (be honest and reasonable)
Track your usage for a representative period (one month is usually sufficient)
Apply that percentage to your annual costs
Document your calculation method
💡 Pro Tip: The IRS no longer requires you to have a separate business phone line to deduct cell phone expenses. However, you must be able to show the business-use percentage is reasonable and substantiated.
Real-World Example: Your cell phone bill is $100/month ($1,200/year) and internet is $80/month ($960/year). If you use them 60% for business:
Phone deduction: $720
Internet deduction: $576
Total deduction: $1,296
Tax savings at 24% bracket: $311
Deduction #5: Professional Services (Legal, Accounting, Consulting)
✨ What It Is:
Any fees you pay for professional services that help you run or improve your business are fully deductible as ordinary and necessary business expenses.
What Qualifies:
Accounting and bookkeeping: Tax preparation, bookkeeping services, payroll services, financial statements
Legal services: Contract reviews, business formation, trademark registration, legal consultations
Consulting services: Business coaches, industry consultants, marketing strategists
Professional memberships: Industry associations, chambers of commerce, networking groups
Licensing and permits: Business licenses, professional certifications, required permits
💡 Pro Tip: Tax preparation fees are deductible as a business expense if they relate to your business income (Schedule C). Personal tax preparation fees are no longer deductible for most taxpayers, but the business portion still is!
Common Professional Services Costs:
Annual tax preparation: $500-$2,000
Monthly bookkeeping: $300-$800
Legal consultation: $200-$500/hour
Business coach/consultant: $500-$5,000/year
Professional memberships: $100-$1,000/year
Potential Savings: If you spend $3,000 annually on professional services at a 24% tax bracket, you save approximately $720 in taxes.
Deduction #6: Marketing and Advertising Expenses
✨ What It Is:
Every dollar you spend to promote your business and attract customers is fully deductible. This is one of the broadest categories of business deductions, yet many self-employed individuals don't track these expenses carefully.
What Counts as Marketing & Advertising:
Online advertising: Google Ads, Facebook/Instagram ads, LinkedIn ads, sponsored posts
Website costs: Domain registration, hosting, website design, maintenance, plugins
Social media: Scheduling tools (Hootsuite, Buffer), graphic design subscriptions (Canva Pro), stock photos
Print materials: Business cards, brochures, flyers, postcards, signage
Promotional items: Branded merchandise, giveaways, swag for events
Event sponsorships: Local event sponsorships, trade show booths, networking event fees
Content creation: Photography, videography, copywriting, graphic design
Email marketing: MailChimp, Constant Contact, ConvertKit subscriptions
SEO services: Search engine optimization, content marketing services
💡 Pro Tip: Meals and entertainment with potential clients are only 50% deductible, but advertising and marketing expenses are 100% deductible. Make sure you're categorizing them correctly!
Real-World Example: Your annual marketing expenses:
Website hosting and domain: $300
Canva Pro subscription: $120
Facebook ads: $1,200
Business cards and printed materials: $400
Email marketing software: $300
Photography for website: $500
Total: $2,820
Tax savings at 24% bracket: $677
Maximizing Your Self-Employment Deductions: Action Steps
⏰ Your Year-End Checklist:
Calculate health insurance premiums paid: Gather all 2025 statements from your insurance provider
Maximize retirement contributions: Determine how much you can contribute before year-end (remember Solo 401k deadline is Dec 31!)
Review phone and internet usage: Document business-use percentage with a usage log
Compile professional service receipts: Tax prep, legal, accounting, consulting fees
Audit marketing expenses: Review credit card statements for all advertising and promotional costs
Consider accelerating expenses: If you're planning marketing or professional services in early 2026, pay before Dec 31 to deduct in 2025
Common Questions About Self-Employment Deductions
Q: Can I deduct these expenses if I have a side hustle while also working a W-2 job?A: Absolutely! As long as you have legitimate self-employment income, you can deduct the ordinary and necessary expenses related to that business. You'll report this on Schedule C.
Q: What documentation do I need to support these deductions?A: Keep receipts, invoices, bank statements, and credit card statements. For phone/internet, document your business-use calculation. For retirement contributions, keep account statements. The better your documentation, the safer you are in an audit.
Q: Can I deduct expenses from earlier in the year that I just remembered?A: Yes! As long as the expense was incurred in 2025 and you can document it, you can claim the deduction. Track down those receipts and statements now.
Q: What if I'm not sure whether an expense qualifies?A: The IRS test is whether the expense is "ordinary and necessary" for your business. When in doubt, consult with a tax professional (and remember—that consultation fee is deductible too!).
Q: Should I incorporate to get better deductions?A: Not necessarily. Many of these deductions are available whether you're a sole proprietor, LLC, S-corp, or C-corp. The decision to incorporate should be based on liability protection, tax planning, and your specific situation—not just deductions.
The Bottom Line: Don't Leave Money on the Table
These six deductions alone can save self-employed professionals $5,000 to $15,000 or more in annual taxes. But here's the catch: you must claim them before December 31st (with some exceptions for retirement contributions).
Many self-employed individuals overpay their taxes simply because they don't know what deductions are available or how to properly document them. Don't be one of them.
💰 Quick Savings Calculator:
If you're in the 24% federal tax bracket and claim:
Health insurance: $9,600 = $2,304 savings
Solo 401(k): $30,000 = $7,200 savings
Phone/Internet: $1,296 = $311 savings
Professional services: $3,000 = $720 savings
Marketing: $2,820 = $677 savings
Total Potential Federal Tax Savings: $11,212
Plus additional state tax savings depending on your location!
Ready to Maximize Your Self-Employment Deductions?
At Sara's Financial Group, we specialize in helping self-employed professionals, freelancers, and contractors identify every deduction they're entitled to. Our personalized approach ensures you're not leaving money on the table.
Schedule your year-end tax consultation today:
Don't wait until April—let's create your personalized deduction strategy before December 31st!
Comments