8 Tax Breaks for Independent Contractors

As an independent contractor, you have more flexibility and control over your work, but you also face specific tax obligations. Unlike traditional employees, independent contractors are responsible for self-employment taxes, income taxes and business expenses, which can add up quickly. Fortunately, here are eight tax breaks that can help you lower your taxable income and overall tax burden as an independent contractor.

A financial advisor can help you identify different tax breaks available to you and recommend strategies to lower your liability.

1. Home Office Deduction

Independent contractors who use part of their home exclusively for business may be eligible for the home office deduction. This deduction allows contractors to write off a portion of their rent or mortgage, utilities as well as maintenance costs related to their home office space.

To qualify, the home office must be used regularly and exclusively for business purposes. The IRS offers two methods to calculate the deduction:

1. Simplified method. Deducts $5 per square foot of office space, up to 300 square feet.
2. Actual expense method. Deducts a percentage of home expenses based on the square footage of the office relative to the entire home.

To claim this deduction, independent contractors should file Form 8829 (Expenses for Business Use of Your Home) and report the total deduction on Schedule C of their Form 1040 tax return.

2. Self-Employment Tax Deduction

Since independent contractors don’t have an employer covering Social Security and Medicare taxes, they must pay a self-employment tax. However, the IRS allows you to deduct half of your self-employment tax from your taxable income.

The self-employment tax rate is 15.3%, which includes:

• 12.4% for Social Security
• 2.9% for Medicare

This deduction helps offset the additional tax burden faced by independent contractors. The self-employment tax is calculated using Schedule SE, and the deductible portion is reported on Form 1040.

3. Health Insurance Premiums Deduction

Independent contractors can deduct the cost of health insurance premiums for themselves, their spouse and their dependents as long as they are not eligible for an employer-sponsored health plan through a spouse’s job. This deduction is available even if the contractor does not itemize deductions and is claimed on Form 1040 as an adjustment to income.

4. Business Mileage Deduction

If you use your vehicle for business purposes, you can deduct mileage expenses. The IRS offers two ways to calculate this deduction:

• Standard mileage rate. Allows contractors to deduct a set amount per mile driven for business purposes. The 2025 rate is $0.70 per mile.
• Actual expenses method. Allows contractors to deduct a percentage of total vehicle expenses, including gas, insurance, maintenance and depreciation.

To claim this deduction, contractors should maintain a mileage log and file Schedule C on their tax return. Business-related mileage must be separate from personal use.

5. Retirement Contributions Deduction

As an independent contractor, you can also reduce your taxable income by contributing to a tax-advantaged retirement account. Some of the most popular options include:

• SEP IRA. Allows contractors to contribute up to 25% of net earnings, with a maximum of $70,000 in 2025.
• Solo 401(k). Allows contributions as both an employer and employee, with a total limit of $70,000 in 2025 (or $77,500 for those 50 and older, and $81,250 between ages 60 and 63).
• Traditional IRA. Allows up to $7,000 in 2025 ($8,000 for those 50 and older) in tax-deductible contributions.

These contributions lower taxable income and help independent contractors save for retirement. Contributions are reported on Form 1040 and, in some cases, additional IRS forms may be required.

6. Internet and Phone Expenses Deduction

The IRS allows independent contractors to deduct a portion of their business-related Wi-Fi and phone bills. To claim this deduction, you should determine the percentage of business use and report the expense on Schedule C. Keeping monthly bills and usage records can help you support this deduction in case of an IRS audit.

7. Professional Services and Software Deduction

If you use business-related software, subscriptions or professional services, you can also deduct these expenses. This includes:

• Accounting software like QuickBooks or FreshBooks
• Project management tools like Trello or Asana
• Legal or tax consultation fees
• Industry-specific software (e.g., graphic design, video editing, or coding tools)

These expenses are fully deductible and should be reported on Schedule C.

8. Education and Training Deduction

Courses, workshops and certifications can also provide a tax break for independent contractors. This includes:

• Online courses and professional development programs
• Conferences and industry-related events
• Books, subscriptions, and research materials

To qualify, the education must be directly related to your current business and not for a new profession. These expenses are claimed on Schedule C under business-related costs.

Bottom Line

There are many tax breaks for independent contractors that can lower their taxable income. By deducting expenses related to a home office, self-employment taxes, health insurance, vehicle use, retirement savings and professional development, you can help reduce your tax liability. A financial advisor can also work with you to optimize deductions and avoid costly mistakes when filing taxes.

Tax Planning Tips

• Need a plan to manage your taxes? A financial advisor has the expertise to help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.

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