Self-employed in year one? The expense deductions most people miss until it’s too late

First year of self-employment hits differently at tax time. Here are the deductions I see people leave on the table most often.

Home office

If you have a space used regularly and exclusively for business — even a dedicated corner of a room — you can deduct a portion of your housing costs. The simplified method: $5/sq ft, up to 300 sq ft ($1,500 max). No receipts, no form complexity. The regular method (actual expenses: rent/mortgage interest × business percentage) takes more work but can be larger.

The bonus: once you qualify for a home office, your drive from home to your first job site becomes business mileage, not a commute.

Vehicle expenses

Two methods — pick one at the start of the year and stick with it for that vehicle:

• Standard mileage rate: 67 cents/mile for 2024. Simple. Keep a mileage log (date, destination, purpose, miles).
• Actual expenses: gas + insurance + repairs + depreciation, multiplied by business-use percentage. Wins if you drive a lot or have a heavy/expensive vehicle. In year one, Section 179 lets you potentially deduct the full purchase price of a vehicle used exclusively for business.

Self-employment tax deduction

The IRS lets you deduct half of your self-employment tax (15.3% × net SE income ÷ 2) from gross income. It's calculated automatically on Schedule SE but it's real money — often $500–$2,000 — that reduces your income tax liability.

Health insurance premiums

If you're self-employed and not eligible for employer-sponsored coverage (spouse's plan counts), you can deduct 100% of your health insurance premiums as an adjustment to income. This one surprises people.

Retirement contributions

SEP-IRA allows contributions up to 25% of net self-employment income (max $69,000 for 2024). Those contributions reduce taxable income dollar for dollar. If you're in the 22% bracket, maxing a SEP-IRA is effectively a 22% return before investment.

Professional development and tools

Courses, books, software subscriptions, professional memberships — all deductible if directly related to your business. Your phone (business-use percentage), internet (if you work from home), and any equipment purchased for the business are also fair game.

The thread that catches people: these all reduce your net profit, which in turn reduces both your income tax AND your self-employment tax. Every deductible dollar you miss costs you roughly 30–38 cents in combined taxes (at typical rates).

What type of self-employment are you doing? The specific wins vary a lot by industry.