A Solopreneur’s Guide to Deducting Business Expenses (Without Raising Red Flags at the IRS)

From setting your own schedule to having the freedom to work from anywhere, there are plenty of perks of self-employment. Another big one? Tax write-offs.

As a solopreneur, you can deduct (otherwise known as “write off”) your legitimate business expenses. This reduces your taxable income, which lowers your tax bill. 

But before you start writing off everything from your socks to your Netflix subscription, take note of this part: You can only write off your legitimate business expenses. Inflating, embellishing, or lying about your expenses isn’t just bad practice—it can trigger an IRS audit.

Don’t panic quite yet. We’re breaking down valid and justifiable tax write-offs for solo business owners, common mistakes that ring alarms with the IRS, and a few other tax strategies you can put into play to avoid overpaying on your taxes. 

10 Legitimate Deductions for Solopreneurs

Here’s your first question: So, what can I write off on my taxes? There are several different expense categories we’ll cover below. But, let’s start by setting a ground rule that will help you determine whether or not you can deduct an expense.

Ask yourself this: Does this expense help me generate revenue for my business? If your answer is a confident and enthusiastic “yes,” then that’s a deductible expense. If not? That purchase doesn’t have a direct impact on your solo business—and it’s probably best to avoid writing it off on your taxes.

With that general framework in mind, here are 10 legitimate expenses you can write off as a solo business owner:

• Home Office Deduction: If you use a portion of your home exclusively for business, you can claim a tax write-off on your rent, mortgage interest, utilities, and repairs for your dedicated workspace. There are two different methods for calculating this deduction: the simplified method and the actual expense method. Or, you can skip all of the math with Lettuce’s built-in home office deductions calculator that will help you maximize your savings.
• Office Supplies and Equipment: From your favorite pens to your ergonomic desk chair, you can deduct all of the tools you use to deliver your work and keep your business running.
• Professional Fees: You might run a solo business, but that doesn’t mean you do it all alone. If you pay an accountant, lawyer, web developer, graphic designer, or any other consultant for business-related services, you can deduct those expenses.
• Advertising and Marketing: Anything you pay for to promote your business—like website costs, ads, promotional materials, business directory listings, social media campaigns, and more—is a valid tax write-off.
• Travel Expenses: If you need to travel for business, your airfare, lodging, and business-related meals (up to 50%) are all deductible. Just remember that this needs to be a business trip—personal vacations don’t count.
• Continuing Education: Any courses, seminars, conferences, and other professional development opportunities can be written off.
• Software and Subscriptions: From your project management platform to your bookkeeping software, all of the digital tools and apps you use for your business are reasonable expenses.
• Health Insurance Premiums: You can deduct any health insurance premiums you pay for yourself, your spouse, or your dependents.
• Retirement Contributions: Your contributions, subject to annual limits, to a retirement plan (like a Solo 401(k) or a SEP IRA) are also deductible and can significantly reduce your taxable income.
• Business Mileage: Keep a log of any miles you drive for business purposes. You can choose between the IRS standard mileage rate (currently at 70 cents per mile) or your actual expenses (like gas and maintenance) as a deduction. 

5 Common Red Flags (That Might Trigger an Audit)

Ultimately, defaulting to the “does this help generate revenue?” question when deciding whether or not to write off an expense should help you avoid any hot water with the IRS. 

But, if you’re still feeling anxious, here’s a look at five common red flags to steer clear of—so you can hopefully avoid an audit. 

• Excessive Home Office Claims: The IRS might be a little skeptical if you claim the entire square footage of your home as your office space. Remember, you can only write off the space in your home used exclusively for your business. Overstating that number can attract scrutiny.
• Personal Expenses Disguised as Business Expenses: You’re probably going to have a hard time convincing the IRS that a massage or a family vacation to Disney World was a legitimate business expense. Avoid trying to pass off your personal purchases as tax write-offs.
• Estimated Expenses: If you’re writing off an expense, you need the exact purchase amount—not a best guess. While round numbers on their own don’t necessarily grab the attention of the IRS, too many unsubstantiated or approximated expenses will likely catch their eye.
• Consistent Losses (Without Legitimate Business Activity): Losses happen—that’s business ownership. So, that on its own isn’t enough to invite suspicion from the IRS. However, if you show a pattern of net losses without any clear profit motive or a business growth plan, the IRS might reclassify your business as a hobby. In that case, deductions aren’t allowed.
• Incomplete or Missing Records: Unreliable recordkeeping is one of the biggest audit triggers. Every deduction should have proper documentation with it. You might never need it, but you’d rather be safe than sorry. If you’re worried about missing something, we have a handy tax documents checklist to help you. 

Feeling nervous? Let Lettuce handle all of this for you. From automatically tracking and categorizing your expenses to helping you figure out an accurate home office deduction, Lettuce can save you stress and money. 

Compliant and Confident: How to Maximize Your Tax Savings (and Avoid Red Flags)

Still wondering if an expense is a legitimate write-off? Ask yourself these questions:

• Does this purchase help generate revenue for my business?
• Am I being honest about the scope and purpose of this expense?
• Do I know the exact purchase amount? 
• Do I have documentation to support and substantiate this expense?
• Have I followed the IRS guidelines for this type of deduction (e.g. home office deduction)? 

If you can answer “yes” to all of the above questions, then you can confidently deduct that expense from your taxable income—without worrying about the IRS knocking on your door. 

As you work to maximize your tax deductions (and, as a result, your take-home pay), here are a few more best practices to keep in mind:

• Open a dedicated business bank account to keep your business and personal finances separate
• Keep detailed records of your income, expenses, and quarterly tax payments
• Stay in the loop on changes to tax laws so you can adjust your tax strategies accordingly

A little diligence now means fewer headaches later—and more money in your pocket come tax time.

Are Deductions the Only Way to Lower Your Taxes?

Keeping track of your legitimate business expenses is a great way to reduce your tax burden, but it’s certainly not the only way. In fact, there’s an even more meaningful change you can make to avoid overpaying your taxes: electing S Corp status.

An S Corp is a tax status that reduces the amount of self-employment tax you pay. Rather than paying this tax on your entire taxable income, you only pay it on the salary you set for yourself (called a “reasonable salary”). The rest of your business income is still accessible to you in the form of owner’s distributions, but it’s not subject to self-employment tax.

While your expenses can add up and chip away at your taxable income, electing S Corp status can mean major tax savings—particularly if you’re a high-earner.

Curious how much you could save? Plug your numbers into our tax calculator and learn more about the money-saving power of this tax status in our S Corp 101 webinar. 

Cut Your Stress and Your Tax Bill (Without Cutting Corners)

Understandably, you want to avoid an audit. But tax strategies aren’t just about avoiding IRS scrutiny—they’re about building a solid financial future for your solo business.

When you combine smart (and legitimate) deductions with proactive planning and the right business structure, you’ll set yourself up for lower stress, fewer surprises, and more money in your pocket. 

Lettuce can simplify your solo business and save you money. Get started today.