14 tax deductions for independent contractors in 2025

Unlike full-time employees with payroll withholdings, self-employed contractors in the United States cover their own taxes. Understanding tax deductions for independent contractors helps them lower taxable income and make financial choices that enhance each professional transaction.

Key tax benefits can include deducting ordinary and necessary business expenses, the employer-equivalent half of self-employment tax (SE), and eligible health insurance premiums. 

Discover practical tax deductions for independent contractors and tips to reduce overall tax liability. This isn't personalized tax advice, so speak with a tax professional about specific situations.

14 tax deductions for independent contractors

Self-employed individuals can claim certain business write-offs that directly support their work. This list covers common deductions, qualification requirements, and limitations.

1. Self-employment tax deduction

Contractors can deduct half of their SE, which includes Social Security and Medicare taxes. They must owe self-employment tax, which generally happens when the net self-employed business income hits $400 or more. This is typically done by deducting 50% of the SE calculated on Schedule SE and is taken on Schedule 1. This write-off reduces taxable income, not the SE itself. 

For the official IRS definition and what it covers, see its page on self-employment tax.

2. Home office expenses

The home office deduction lets contractors use part of their home for business purposes, then deduct the work-use share of eligible home expenses, like utility and repair costs. They can choose the simplified method ($5 per square foot, up to 300 square feet) or claim actual expenses with Form 8829 and allocate by business-use percentage. Mixed personal use disqualifies the space, so it’s best to document the square footage and keep proof, such as photos and a sketch. 

If they use the expense method, typical costs on Form 8829 include rent, maintenance, and utilities like heat and electricity. For homeowners, this can also include depreciation and mortgage interest.

3. Travel expenses

When business requires contractors to travel for work-related events, they can deduct transportation, lodging, and related costs. It’s essential to keep receipts and separate personal and business expenses. For instance, if a contractor remains in town an extra day to sightsee, they can’t deduct that night’s hotel stay.

Common expenses include airfare, accommodations, and transport fees like taxi rides and tolls.

4. Advertising and marketing costs

Contractors can deduct the costs of winning and retaining customers, including ad placements, branded assets, and website expenses. They deduct these on Schedule C in the tax year they paid the marketing costs. 

Independent contractors may need to capitalize personal promotion that isn’t tied to business or spending that creates a long-lived asset, like specialized software or equipment.

5. Legal and accounting services

Independent contractors can deduct certain legal and financial fees, like startup costs for setting up your business structure and bookkeeping. For example, a contractor hires an attorney to review a non-compete agreement before signing a client contract. If the contractor decides to go through with the relationship, the company may cover the legal bill. It’s best to keep engagement letters and invoices with a clear business purpose for proof.

6. Business internet and cell phone

Self-employed people can deduct the business-use share of connectivity—internet service, mobile plans, and web hosting tied to work. It’s a good practice to allocate a reasonable percentage if they use the same plan for personal and business. Many contractors are online for a large portion of the day. Independent contractors should maintain monthly bills and call logs as a record, just in case of an audit.

7. Insurance

Insurance that supports an independent contractor business is tax deductible. Contractors who show a net profit and don’t have access to an employer-sponsored plan can claim the self-employed health insurance deduction on Schedule 1. They can deduct business insurance policies, including independent contractor liability coverage, property, and cyber.

8. Meals

Contractors can typically deduct 50% of meals when there’s a clear business purpose, like dining with clients or eating during professional travel. For proof, it’s best to save receipts and keep notes of why the cost was business relevant. For instance, they might create a document that logs clients you meet and the purpose of those meetings. 

The rules are different for Department of Transportation workers, who can deduct 80% of meals due to longer, more frequent trips away from home.

9. Car and mileage expenses

Independent contractors can deduct car and driving fees, like gas and maintenance. There are two methods to calculate the deduction: a standardized mileage rate or the actual costs per item. For the standardized way, multiply the number of miles driven on by a specific amount of money (this varies from year to year). Deducting actual costs, like new tires or oil changes, may yield a larger deduction but requires extensive record keeping.

Keep in mind that only business driving qualifies, not commuting. This means trips to visit clients are eligible, but regular drives from home to work aren’t.

10. Retirement contributions

While they don’t have employer-sponsored benefits, contractors can deduct their own retirement plan contributions within annual limits and deadlines to lower taxable income. This includes a solo 401(k), a Simplified Employee Pension (SEP) IRA, or a SIMPLE IRA. The usual process is reporting contributions on form 1040, Schedule 1, but it’s best to check individual plans to be sure.

11. Education and training

Self-employed professionals can deduct education and training that maintains or improves business skills. They can claim eligible costs, such as tuition and required materials, on Schedule C. 

Training that opens new professional opportunities aren’t eligible. For example, a writer can’t deduct a law class. Even if this education would improve their writing, it would qualify them for unrelated jobs.

12. Cost of goods sold

If self-employed people sell products, they can claim the cost of goods sold (COGS), including inventory, raw materials, and packaging. The wages of employees or additional contractors who help with production may qualify as part of COGS. People can calculate COGS by adding the price of their beginning inventory plus the cost of new goods and subtracting the value of the remaining inventory at the end of the year. They then report this in Part III of Schedule C.

13. Bank and interest fees

Contractors can deduct interest on work debt, along with routine fees, from business bank accounts and payment processors. It’s best to track borrowing purposes and keep proof statements for accurate record keeping. 

If income exceeds the exception threshold, Section 163(j) may restrict the deduction. However, most independent contractors fall under the small business exception, which generally only applies to parties with an annual gross receipt of over $30 million.

14. Qualified business income 

Many independent contractors can claim up to 20% of qualified business income (QBI) from pass-through sources—businesses where profits flow directly to the owner’s personal tax return. If they’re a sole proprietor or operate a single-member LLC, partnership, or S corporation, they may qualify.

The deduction amount depends on the total taxable income and whether work falls under a specified service business. For instance, there may be limitations for contractors in certain industries, like health and law. Tax professionals can advise on how a specific field affects QBI deductions.

The typical process is finding the net business income on Schedule C, using IRS forms 8995 or 8995-A to calculate the final number, and claiming the deduction on Form 1040.

5 smart tips for self-employed tax deductions

Keeping organized records and maintaining itemized deductions makes filing far easier and protects people if the IRS asks questions. Here are a few tips to help independent contractors stay compliant and claim everything they’re entitled to:

• Keep business and personal expenses separate: Open a dedicated business checking account, and use it only for work-related income and purchases. Clear separation prevents mixing costs and simplifies bookkeeping. 
• Track mileage and expenses in real time: Use an app or spreadsheet to track transactions and business travel as they happen. Capture receipts right away, and label them by category.
• Save for quarterly estimated taxes: Independent contractors don’t have automatic withholdings, so it’s a good idea to make estimated payments if you expect to owe at least $1,000 in federal tax for the year. Pay within a specific timeframe to prevent penalties—there are four IRS due dates throughout the year, including April 15th, June 16th, September 15th, and January 15th. These dates may shift slightly based on weekends and holidays, so always verify the current year’s dates with the IRS. 
• Know what “ordinary and necessary” means: These are common tax phrases that show people which costs are eligible. A deductible expense must be both ordinary, which means it’s common and accepted in your line of work, and necessary, which means it’s helpful and appropriate for running your business. 
• Keep documentation for at least three to six years: Hold on to receipts, contracts, and bank statements for at least three years, or six years if income is underreported by more than 25%. The IRS can audit within those windows, so maintaining organized records can help resolve questions quickly and accurately. 

Ensure tax-ready, compliant contractor management with Oyster

Knowing which deductions apply and how they affect overall tax obligations gives independent contractors more control over their finances. Still, every situation is unique. Always consult a qualified tax professional for guidance on specific requirements.

Oyster makes it simple for businesses to hire and pay independent contractors globally. The Global Contractors platform helps you: 

• Generate country-specific, compliance contracts in minutes.
• Pay individuals in 120+ currencies with >99% on-time accuracy.
• Centralize invoices, expenses, and tax documentation in one dashboard.
• Add optional misclassification protection up to $500,000.

This comprehensive management enhances operations and helps your workers maintain tidy records, improving their experience with your company. Build a smoother, compliant workflow for your international team, and hire and manage global contractors confidently with Oyster’s Global Contractors.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop and take care of a thriving global workforce. It lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

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