Self-employed founders and small business owners face a tax situation that is genuinely more complex than a W-2 employee's. You are responsible for both sides of payroll taxes, you have business expenses that are deductible if you document them correctly, and you have planning opportunities that phase out or expire if you do not act before the tax year closes. Most of the missed deductions below are missed not because founders are unaware they exist but because they do not know the specific rules that determine whether their situation qualifies. These are the ten deductions worth knowing in detail.
1. Home Office Deduction
The home office deduction is available if you use a portion of your home regularly and exclusively for business. The exclusive use requirement is the most commonly misunderstood aspect. A desk in your living room does not qualify. A dedicated room used only for business -- not as a guest room when family visits, not as a storage room with a desk in the corner -- does qualify.
There are two calculation methods. The simplified method allows a deduction of $5 per square foot of your home office space, up to 300 square feet, for a maximum deduction of $1,500. The actual expense method requires calculating the percentage of your home used for business (office square footage divided by total home square footage) and applying that percentage to your total home expenses (rent or mortgage interest, utilities, insurance, repairs). The actual expense method typically produces a larger deduction but requires more documentation.
Post-TCJA, this deduction is only available to self-employed individuals. W-2 employees cannot deduct home office expenses at the federal level, regardless of whether they work from home full-time.
Records to keep: Measurements of your office space and total home square footage, receipts for all home expenses if using the actual method, photographs of the dedicated workspace.
2. Self-Employed Health Insurance Premiums
If you pay for your own health, dental, or vision insurance -- including coverage for your spouse and dependents -- you can deduct 100% of those premiums from your gross income. This deduction reduces your income tax liability but not your self-employment tax liability, which is a meaningful but often misunderstood limitation.
The eligibility requirement that most people miss: you cannot claim this deduction in any month where you were eligible to participate in a subsidized health plan through your spouse's employer. Eligibility for the plan disqualifies you even if you chose not to enroll. If your spouse works for a company with health benefits and you were eligible to be added to that plan, the months of that eligibility reduce or eliminate your deduction.
Records to keep: Premium payment statements from your insurer for the full year, documentation of any months where you were eligible for an employer-subsidized plan through a spouse.
3. Self-Employment Tax Deduction
Self-employed founders pay both the employee and employer sides of Social Security and Medicare taxes, which totals 15.3% on net self-employment income up to the Social Security wage base, and 2.9% on net income above it. What most founders do not know is that you can deduct half of your self-employment tax from your gross income as an above-the-line deduction.
This deduction does not appear on Schedule C with your other business expenses. It appears on Schedule 1, which many self-prepared returns complete incorrectly or incompletely. The deduction reduces your adjusted gross income, which in turn reduces your income tax liability across all income. At a 24% marginal rate and $100,000 in net self-employment income, the SE tax deduction alone saves approximately $1,836 in income taxes.
Records to keep: No additional records are needed. The SE tax is calculated on Schedule SE and the deduction flows automatically to Schedule 1 if prepared correctly.
4. Retirement Contributions
Self-employed retirement accounts offer some of the largest available deductions and are systematically underused by founders. The three main options:
- SEP-IRA: Allows contributions of up to 25% of net self-employment income, with a 2024 maximum of $69,000. Contributions can be made up to the tax filing deadline including extensions, meaning you can decide in April how much to contribute for the prior year. Simple to set up, no annual filing requirements.
- Solo 401(k): Allows both an employee contribution (up to $23,000 in 2024, $30,500 if age 50 or older) and an employer contribution of up to 25% of compensation. The total contribution limit is $69,000 (or $76,500 with catch-up). The Solo 401(k) has a higher effective contribution ceiling for founders with lower net self-employment income because the employee contribution is not limited to 25% of income the way the SEP-IRA is. Requires more setup and annual filing (Form 5500-EZ) once the account balance exceeds $250,000. Must be established by December 31 of the tax year.
- SIMPLE IRA: Employee contribution up to $16,000 in 2024, with a required employer match. Less commonly used by solo founders than the above two options.
Records to keep: Contribution confirmations from the account custodian, documentation of the net self-employment income used to calculate the maximum allowable contribution.
5. Startup Costs
If you started your business within the current tax year, the IRS allows you to deduct up to $5,000 in startup costs in the year you begin business. Costs above $5,000 are amortized over 15 years (180 months). The $5,000 immediate deduction phases out if total startup costs exceed $50,000, reducing dollar for dollar above that threshold.
Startup costs include market research, legal fees for entity formation, accounting fees incurred before the business opened, costs of training employees before launch, and expenses for organizational costs. Costs incurred after the business opened are regular business expenses, not startup costs. The distinction is the date the business became operational.
Records to keep: All receipts for pre-opening expenses with dates, documentation of when the business became operational.
6. Education and Professional Development
Expenses for education that maintains or improves skills required in your current business are deductible. This includes courses, books, subscriptions to professional publications, conference registrations, and online learning platforms. The key limitation: the education must be related to your current business, not a new career. A founder learning advanced marketing skills for their marketing-focused business can deduct those costs. The same founder paying for law school to eventually practice law cannot.
Professional development expenses that are often overlooked: industry conference travel (registration plus transportation and lodging), professional association memberships, subscriptions to trade publications, and the cost of hiring a tax advisor for tax planning advice. That last one is worth noting explicitly -- the fee you pay for a qualified tax advisor's planning session is itself deductible as a business expense.
Records to keep: Receipts for all education expenses, a note documenting how each expense relates to maintaining or improving current business skills.
7. Business Mileage
You can deduct mileage driven for business purposes at the standard IRS rate, which was 67 cents per mile for 2024. Business mileage includes driving to client meetings, vendor meetings, the bank to make a business deposit, a business supply store, and any other destination directly related to business operations. Commuting miles -- driving from your home to a fixed office location -- are not deductible.
The contemporaneous mileage log requirement is strict. The IRS expects a record created at or near the time of each trip that documents the date, destination, business purpose, and miles driven. A mileage tracking app (MileIQ, Everlance, or similar) satisfies this requirement automatically. A reconstructed log created from memory at tax time does not meet the standard and will not survive an audit.
Records to keep: A contemporaneous mileage log with date, destination, business purpose, and mileage for each trip.
8. Software and Subscriptions
Any software, SaaS product, or digital subscription used for business is fully deductible as a business expense. This category is broader than most founders realize. Project management tools, accounting software, CRM platforms, design tools, communication platforms, cloud storage, cybersecurity software, and any subscription used in the operation of the business qualify. If you use a subscription for both personal and business purposes, you can deduct the business-use percentage.
This is often the category where founders underreport most significantly because they pay for business software from personal accounts or forget that annual subscriptions renew automatically. A quarterly review of your credit card statements specifically looking for business-related subscriptions is a reliable way to catch everything.
Records to keep: Statements showing subscription charges, a note documenting the business purpose of each subscription.
9. Professional Fees
Fees paid to accountants, attorneys, consultants, and other professionals hired for business purposes are fully deductible. This includes your tax advisor's fee for tax preparation and tax planning, legal fees for contracts or business formation, the cost of consulting engagements related to your business operations, and advisory fees. The fees must be ordinary and necessary for the business.
Fees for legal or accounting services related to personal matters are not deductible even if the same professional handles both. If your attorney handles both your business contracts and your personal will, only the business portion of their fees is deductible.
Records to keep: Invoices from all professional service providers with the services described, notation of the business purpose for each engagement.
10. Qualified Business Income Deduction (Section 199A)
The Section 199A deduction allows eligible self-employed individuals and pass-through business owners to deduct up to 20% of their qualified business income from their taxable income. This is an income tax deduction, not a reduction in self-employment tax. For a founder with $200,000 in qualified business income in the 24% bracket, the maximum 199A deduction could reduce income tax by up to $9,600.
The deduction has significant limitations. For specified service trades or businesses (SSSTBs) -- which include fields like law, accounting, financial services, health, and consulting -- the deduction phases out for taxpayers with income above threshold amounts ($182,050 single / $364,200 married for 2024). For other businesses, W-2 wages paid and the qualified property basis may limit the deduction at higher income levels. The rules are complex enough that most founders should not attempt to calculate this deduction without qualified tax software or a tax advisor.
Records to keep: Documentation of the business structure, W-2 wages paid to employees, and qualified property used in the business.
Missing deductions compounds over time. A qualified tax advisor can review prior returns to identify missed deductions that may support an amended return. For a complete approach to tax planning, see our complete guide to tax planning for business owners, and read about why you should never ask ChatGPT for tax advice.
