TL;DR

Business expenses are the costs of running your business — software, hardware, internet, professional services, and more. Tracking them carefully reduces your taxable income, directly lowering your tax bill.

Key Points

✓

To be deductible, an expense must be ordinary (common in your field) and necessary (helpful for your business)

✓

Keep receipts and records for all business expenses — the IRS requires documentation for deductions

✓

Mixed-use expenses (home, phone, car used partly for business) require pro-rating based on actual business use percentage

✓

Business expenses reduce your net profit on Schedule C, which lowers both income tax and [[self-employment-tax]]

Common Business Expenses for Freelancers

Freelancers and small business owners commonly deduct¹: software subscriptions (design tools, project management, accounting software), hardware and equipment (computers, cameras, monitors — expensed immediately or depreciated), professional development (online courses, books, conferences related to your work), home office (if used regularly and exclusively for business), business phone and internet (percentage used for business), professional services (accountant fees, legal fees), marketing and advertising, travel for business purposes, and health insurance premiums if self-employed. Each of these reduces your net profit and therefore your taxable income.

Mixed-Use Expenses

When an expense serves both personal and business purposes — your phone, car, or home internet — you can only deduct the business portion. Calculate the business use percentage and apply it to the total cost. For example: if you use your car 40% for business, you can deduct 40% of related costs (mileage, insurance, maintenance). For phones, many freelancers estimate 50–70% business use. The IRS requires this allocation to be documented — keep a brief log of business calls or trips if your deduction ever gets questioned. 'I use it sometimes for business' isn't sufficient documentation in an audit.

Tracking Expenses Year-Round

The biggest mistake freelancers make with business expenses is trying to reconstruct them at tax time. Instead, build a year-round system: connect your business bank card and credit card to accounting software, review and categorize transactions monthly, collect receipts immediately (photograph them the day you incur them), and note the business purpose for expenses that aren't obvious. This 15 minutes per week eliminates days of scrambling in April. A simple method: have one dedicated card for all business expenses, making it easy to export a complete record at year-end without manually sorting personal from business charges.

References

IRS — Deducting Business Expenses ↗

irs.gov

IRS — Self-Employment Tax (Social Security and Medicare Taxes) ↗

irs.gov

Last updated: June 9, 2026

Related Terms

Tax Deduction

A business or personal expense that can be subtracted from gross income to reduce the total taxable income, thereby lowering the amount of tax owed.

Write-Off

The act of removing a business asset or uncollectable receivable from financial records, or the process of deducting a legitimate business expense from taxable income.

Self-Employment Tax

A US federal tax consisting of Social Security and Medicare contributions that self-employed individuals must pay, covering both the employee and employer portions typically split in traditional employment.

Profit & Loss Statement

A financial statement that summarizes all revenues, costs, and expenses over a specific accounting period, showing whether a business made a profit or incurred a loss.

Receipt

A document issued by a seller to confirm that payment has been received from a buyer, serving as proof of the completed transaction.

Put it into practice

Create professional invoices in seconds with LiteBill — free forever, no account required. Apply these concepts to your real billing workflow today.

Try LiteBill Free

← Previous in Taxes & Compliance

1099 Form

Next in Taxes & Compliance →

Estimated Tax