How to Maximize Your Tax Savings When You’re Self-Employed

Listen, nobody wants to pay more taxes. The more money you can keep, the better—especially when you’re self-employed.

But, despite your best intentions, you could be overpaying your taxes by missing out on valuable freelancer tax deductions. When you track and write off these legitimate business expenses, you lower your taxable income. That means lower tax payments and more money in your pocket.

Wondering what expenses you can reasonably deduct as a business-of-one? Let’s take a look at some of the most common self-employed business deductions that can help you reduce your tax burden and keep more of your hard-earned money.

5 Freelancer Tax Deductions You Don’t Want to Miss

In general, when you’re wondering whether or not an expense qualifies as a tax deduction, ask yourself this: Does this expense help generate revenue for my business? If you can confidently answer “yes,” it’s deductible.

Your Netflix subscription? It’s going to be tough to spin that into a justifiable business expense. But a new laptop or airfare for an industry conference? Those help you deliver billable work and make valuable network connections (both of which can generate revenue), so they’re legitimate deductions.

That’s the basic rule to keep in mind. But, let’s get a little more specific by looking at a few common freelancer tax deductions that can help you reduce your tax bill.

1. Home Office Deduction

If your home or apartment doubles as your office, you qualify for a home office deduction. You can deduct the part of your home that’s used exclusively and regularly for business. There are two different approaches for calculating this deduction:

• Simplified method: $5 per square foot up to 300 square feet.
  • Example: Your home office is 100 square feet, so you can take a $500 deduction on your taxes.
• Regular expense method: Calculate the percentage of your home used for business and apply that percentage to your expenses like your rent or mortgage, utilities, insurance, property taxes, and more.
  • Example: Your home office is 10% of your total home, so you can deduct 10% of all of your home expenses from your income.

Wondering what your home office deduction could look like? Use this calculator to easily determine your deduction.

2. Business Equipment and Tools

You can deduct any equipment or tools you use for your solo business. This can include everything from your computer and favorite pens to your software subscriptions and ergonomic office chair.

TIP: Yep, your Lettuce subscription is a write-off too.

3. Travel Expenses

From a faraway client meeting to an industry conference, your travel costs—like your hotel, transportation, and even 50% of your meals—can all be deducted. Just make sure to keep detailed records and receipts for these expenses.

Even if you aren’t traveling far, you can also deduct your car mileage. For 2024, the IRS standard mileage deduction is 67 cents per mile that you drive for business purposes. So, make sure you keep track of your mileage for that coffee meeting or that local client photoshoot. While it might seem small, it can really add up.

4. Training and Professional Development

Whether you take a coding course, attend a relevant workshop, or purchase books related to your career and industry, these sorts of educational costs are deductible. Track them and you won’t just keep learning—you’ll keep saving.

5. Retirement Contributions

When you’re self-employed, you can benefit from tax-deferred retirement accounts like a SEP-IRA or a Solo 401(k). Contributing to these accounts accomplishes two important things:

1. It reduces your annual taxable income
2. It helps you set aside money for retirement

To take full advantage of all of these deductions, you’ll need to keep records of these transactions. That doesn’t need to mean a bunch of elbow grease on your end. Lettuce will set you up with a business bank account and then automatically track and categorize all of your business expenses for you.

How You Can Save Even More With an S Corp

Your business expenses are a big help in lowering your tax burden—but they’re certainly not the only way to maximize your savings. An S Corporation (often abbreviated to S Corp) can help you kick your tax savings into high gear.

When you’re self-employed, you’re required to pay self-employment taxes, which cover your contributions to Social Security and Medicare. If you’re operating as an LLC or a sole proprietor, you pay those taxes on your entire income. But, as an S Corp, you split your income into two parts: your salary and distributions. Here’s the difference:

• Salary: This is what you “pay” yourself. You’ll pay self-employment taxes on only this portion. The IRS requires this salary to be "reasonable," meaning it must reflect what someone in your role would earn.
• Distributions: The rest of your income is taken as distributions, which are not subject to self-employment taxes. This can mean major tax savings, especially if you’re a high-earner.

For example, let’s say you generated $175,000 in revenue for the year as a freelance software developer. When you file your taxes as a sole proprietor, your taxable income is $162,000 (that’s a whopping 92.35% of your revenue). But, if you become an S Corp, you can split your $175,000 revenue into:

• $70,000 salary
• $105,000 distribution
  
  

You’ll only pay self-employment taxes on your $70,000 salary (rather than your full amount), which can save you over $14,000 in taxes. That eye-popping savings would be difficult to achieve with deductions alone.

If you’re curious about how much you can save by switching to an S Corp, take a few seconds to enter your information into this easy tax calculator.

Becoming an S Corp: Switching (and Saving) Made Simple With Lettuce

Deductions matter, but becoming an S Corp is when the real savings come into play. With Lettuce, your S Corp election is surprisingly easy.

Once you’re signed up, Lettuce will take care of setting up your LLC (if you don’t already have one), getting your Employer Identification Number (EIN), and filing your S Corp election. That’s it. Just a few simple steps and you’re ready to take advantage of major tax benefits.

Even better? Lettuce can also help you maximize your write-offs by setting you up with a dedicated bank account for your solo business. All of your business expenses will be automatically tracked and categorized so you skip the manual work and ensure you don’t miss a single deduction.

Maximize Your Tax Savings (and Minimize Your Stress)

You need to pay your taxes—but that doesn’t mean you want to overpay them.

Fortunately, keeping careful track of your deductions and switching to an S Corp are simple steps you can take to lower your tax burden and keep more of your money where you want it: in your bank account.

Ready to see how much you can save? Check out the Lettuce Tax Calculator to stop overpaying and start saving.