Common Tax Deductions for US Independent Contractors (2026)

Independent contractors often pay more in taxes than necessary, usually without realizing it.

The challenge isn’t a lack of tax deductions. It’s knowing which ones apply to your work and how to document them correctly. Many deductions are lost because of tracking expenses inconsistently, wrong calculations, or missing important documentation.

This guide breaks down the most important tax deductions available to independent contractors in the US. You’ll learn how each deduction works, what the IRS expects you to keep on file, and where contractors commonly get it wrong.

You’ll also see how Deel turns bookkeeping into a continuous, compliant process rather than a year-end scramble.

See also: 8 Benefits of Being an Independent Contractor in 2025

Understanding tax deductions for independent contractors

A tax deduction is an expense the IRS allows you to subtract from your gross income, which lowers the amount of income subject to tax.

For independent contractors and self-employed professionals, knowing which expenses qualify as deductible helps you stay compliant with federal tax rules.

Deductible expenses must be both ordinary and necessary for your business or sole proprietorship. An ordinary expense is common and accepted in your line of work, while a necessary expense is helpful and appropriate for running your business.

The IRS Self-Employed Individuals Tax Center provides current federal guidance. But applying those rules to your specific situation requires context, especially if you work with international clients.

A qualified tax professional can help you interpret deduction rules correctly. Through Deel Bookkeeping, you can connect with local tax experts who understand country-specific requirements.

They can confirm whether an expense qualifies, explain documentation requirements, and help you stay compliant based on where and how you work.

See also: How to Register a Sole Proprietorship in the Philippines

What expenses can self-employed workers deduct?

Several deduction categories exist to reduce taxable income for contractors. Each category has specific eligibility requirements and documentation standards.

Self-employment tax deduction

Self-employment tax covers Social Security and Medicare contributions and is generally 15.3% of net earnings.

Unlike employees who split these taxes with an employer, self-employed individuals pay the full amount. The IRS, however, allows you to deduct half of your self-employment tax from your adjusted gross income, which reduces your overall tax burden.

The self-employment tax applies to net earnings. An additional 0.9% Medicare tax applies once income exceeds USD 200,000 for single filers or USD 250,000 for married couples filing jointly.

This additional tax is not deductible.

The deductible portion of self-employment tax is calculated on Schedule SE and claimed as an adjustment to income on Form 1040.

Home office deduction

The home office deduction allows you to deduct expenses for the part of your home used regularly and exclusively for business. But it must be your principal place of business or a place where you routinely meet clients.

The IRS offers two calculation methods:

• The simplified method: You claim USD 5 per square foot of your home office, up to 300 square feet, for a maximum deduction of USD 1,500
• The regular method: You calculate actual home expenses such as mortgage interest, rent, utilities, insurance, and repairs, then deduct the portion that matches the percentage of your home used for business

To claim the deduction, use Form 8829 for the regular method and report the simplified method directly on Schedule C.

Advertising and marketing expenses

Advertising and marketing expenses that promote your business are fully deductible. Deductible expenses include:

• Digital marketing campaigns such as Google Ads
• Website development and hosting
• Social media management services
• Print materials like business cards
• Billboard and outdoor advertising
• Television and radio spots
• Promotional events or sponsorships

Expenses must be business-related and supported by invoices or receipts that show their purpose.

Travel and vehicle expenses

Business travel expenses are deductible when you travel away from your tax home for business purposes. Your tax home is the city or general area where your main place of business is located, regardless of where you live.

You can deduct airfare, lodging, car rentals, and 50% of business meal costs incurred during travel.

For vehicle expenses, the IRS offers two calculation methods.

• Standard mileage rate: Claim 70 cents per mile driven for business use
• Actual expenses method: Deduct the costs of operating your vehicle, such as fuel, maintenance, and repairs, based on the percentage of business use versus personal use

Keep a mileage log that records the date, destination, business purpose, and miles driven for each trip. For actual expense deductions, save all receipts for vehicle-related costs.

You cannot switch freely between methods. Once you use the actual expenses method for a vehicle, you cannot switch to the standard mileage rate for that same vehicle in later years.

Health insurance premiums

You can deduct health insurance premiums paid for yourself, your spouse, and your dependents as an adjustment to income. This includes medical, dental, and qualified long-term care insurance.

To qualify, you must have a net profit on Schedule C and cannot be eligible for coverage through an employer, including a spouse’s employer. The deduction is limited to your net self-employment income and cannot create a loss.

If you purchase health insurance through the Small Business Health Options Program (SHOP) Marketplace, you may qualify for a premium tax credit of up to 50% of premiums paid.

For long-term care insurance, the deductible amount depends on age and is calculated using Form 7206. It’s claimed on Schedule 1 of Form 1040, reducing adjusted gross income before income tax is calculated.

See also: Health Insurance Options for Contractors: Boost Loyalty and Retention

Qualified business income deduction (QBI)

The QBI deduction allows eligible self-employed workers to deduct up to 20% of their qualified business income. For many contractors operating as pass-through entities, this can significantly reduce taxable income.

The deduction begins to phase out once taxable income exceeds USD 197,300 for single filers or USD 394,600 for married couples filing jointly. Below these thresholds, most self-employed individuals can claim the full 20% deduction.

Above these thresholds, the deduction may be limited based on W-2 wages paid, the unadjusted basis of qualified property, or the nature of the business.

Certain specified service trades or businesses, including health, law, accounting, consulting, and financial services, face additional restrictions. For these businesses, the deduction phases out entirely at USD 247,300 for single filers and USD 494,600 for joint filers.

Retirement plan contributions

Contributing to a retirement plan as a self-employed individual can reduce taxable income while helping you save for the future.

Qualified retirement plans include:

• The Simplified Employee Pension IRA (SEP IRA)
• Solo 401(k) plans (if you have employees)
• SIMPLE IRA

Contributions are reported on Form 1040 using the schedule that applies to your specific plan.

See also: Paid Time Off: Do Independent Contractors Get Holiday Pay?

Education and training expenses

Work-related education expenses are deductible if they maintain or improve skills needed in your current business.

Deductible costs may include courses, seminars, workshops, professional certifications, and related expenses such as required books. The education must have a clear business purpose and relate directly to your existing work.

Education that prepares you for a new trade or business does not qualify, even if it improves general knowledge. For example, a graphic designer can deduct training for advanced design software but not the cost of law school.

Education that helps meet basic entry-level requirements for a field is also not deductible.

To support these deductions, keep receipts and course materials that show a clear business purpose.

Equipment depreciation

Business equipment and other assets with useful lives longer than one year can be deducted through depreciation, which spreads the cost over the asset’s expected lifespan.

Section 179 allows you to expense the full cost of qualifying assets in the year of purchase. You can immediately expense up to USD 2,500,000 of qualifying equipment, but the deduction begins to phase out once your total purchases exceed USD 4,000,000.

Qualifying property includes machinery, equipment, vehicles, computers, software, and furniture used in your business. Real property generally does not qualify, although certain improvements may be eligible.

Choosing between regular depreciation and Section 179 depends on income and cash flow. Section 179 favors contractors with strong current earnings who want immediate deductions, while regular depreciation may suit those expecting higher future income.

The Section 179 deduction cannot exceed your business income for the year, but you can carry unused amounts forward.

Business supplies and utilities

Everyday business supplies and utilities are fully deductible in the year they’re purchased, as long as they’re ordinary and necessary for your work. Common examples include:

• Office materials
• Technology items like computers and software subscriptions
• Professional memberships
• Postage and shipping
• Cleaning supplies for business spaces

Utilities like electricity and internet service are deductible based on the percentage of business use, so keep records showing the percentage used for business.

Business insurance premiums for property coverage, professional liability, errors and omissions, and general liability are fully deductible.

See also: Do You Need an Independent Contractor License to Work?

How to avoid missing tax deductions as a contractor

Tracking and claiming deductions correctly requires organized records, the right calculation methods, and accurate filing.

Maintain accurate records and documentation

The IRS can audit returns up to three years after filing, or longer in cases of substantial underreporting, which makes long-term documentation essential. For every deductible expense, retain the receipt or invoice and record the date, amount, and business purpose.

Use separate bank accounts and credit cards for business transactions to simplify tracking and clearly show business intent.

Deel streamlines this process by letting you scan receipts, categorize expenses automatically, and keep all records centralized. Because it’s cloud-based, your documentation stays backed up, organized, and accessible whenever you need to support a deduction.

Choose between simplified and detailed methods

For certain deductions, particularly home office and vehicle expenses, the IRS offers both simplified and detailed calculation methods. Selecting the appropriate method depends on your specific circumstances, recordkeeping capabilities, and which method yields the larger deduction.

Consider calculating deductions both ways when possible to determine which method provides greater tax benefits for your situation.

File the correct tax forms

Using the right IRS forms and completing them accurately helps prevent errors, delays, and penalties. Here are the core forms to report income and claim deductions:

• Form 1040: Reports all income and calculates total tax liability
• Schedule C (attached to Form 1040): Reports business income and expenses and calculates net profit or loss
• Schedule SE (attached to Form 1040): Calculates self-employment tax based on net earnings
• Form 8829: Calculates the home office deduction using the regular method
• Form 4562: Reports depreciation and Section 179 expensing for business assets

Common filing mistakes include mismatched 1099 income reporting, missing documentation, incorrect home office or vehicle calculations, and failure to pay estimated quarterly taxes.

When you use Deel Contractor to manage your clients, it supports the paperwork that feeds into local tax processes.

When a contract is created, Deel collects the required information and helps generate and manage applicable tax forms, such as 1099s. This ensures your income documentation is accurate, consistent, and easy to reference when preparing your return.

See also: A Guide to 1099 Employee Rights for Contractors and Clients

Consult a tax professional

While you can successfully file your own taxes, certain situations warrant professional assistance. Consider consulting a tax professional if:

• Your income exceeds the QBI deduction phase-out thresholds
• You are planning major equipment purchases and need advice on Section 179 expensing vs. depreciation
• You receive an IRS audit notice or correspondence questioning deductions
• You operate in multiple jurisdictions with complex filing rules
• Your business has undergone significant changes, such as hiring employees or changing its structure

See also: How Contractors Can Get Tax Advice On Deel

Reimbursable expenses for contractors

Reimbursable expenses are costs a contractor incurs on behalf of a client and is later reimbursed for. Handling these expenses correctly is important, since improper treatment can turn reimbursements into taxable income.

What expenses can be reimbursed tax-free

Not all reimbursements are tax-free. To exclude them from taxable income, the IRS requires proper documentation and compliance with accountable plan rules.

Under an accountable plan, expenses are not treated as income if they are legitimate business costs, adequately documented, and any excess reimbursement is returned.

If these requirements aren’t met, reimbursements may be treated as additional compensation and become subject to self-employment tax.

Common tax-free reimbursable expenses include:

• Business travel
• Project-specific supplies
• Approved mileage
• Client-required equipment
• Shipping costs

The key distinction is that reimbursable expenses are incurred specifically on behalf of a client, not as part of your general business operations, and the client agrees in advance to reimburse them.

Documentation requirements for reimbursements

The IRS requires contractors to provide evidence to support reimbursed expenses within a reasonable period, typically within 60 days of incurring the expense.

Essential documentation includes:

• Itemized receipts showing the date, amount, vendor, and business purpose
• Detailed expense reports with all supporting receipts attached
• Client approval or authorization for reimbursable costs
• Records created at or near the time the expenses were incurred

Written agreements should clearly define which expenses are reimbursable, the documentation required, and submission deadlines.

Deel Bookkeeping lets you organize expenses by client, making reimbursement requests easier to manage. It keeps reimbursable expenses distinct from general business expenses, lowering the risk of inaccurate claims that can strain client relationships.

When you use Deel Contractor to manage client relationships, you also benefit from localized agreements that clearly define reimbursement terms upfront. This helps align expectations and support compliant recordkeeping.

Simplify and maximize tax deductions with Deel

Tax deductions can make a meaningful difference for independent contractors, but only when they’re handled correctly. You need accurate records, consistent tracking, and a clear understanding of how IRS rules apply.

Deel Bookkeeping brings those pieces together in one place. It helps you generate compliant invoices, track expenses, organize documentation, and manage tax forms throughout the year, with access to local tax experts when you need guidance.

The result is a simpler, more reliable way to stay compliant and make sure the deductions you claim work in your favor.

Sign up for the Deel platform today to simplify your independent contractor bookkeeping.