Frequently, self-employed business owners are encouraged to switch to another form of business ownership, including incorporation for liability protection reasons.
Strategy: Don’t be so quick to change. There are plenty of benefits to sticking with the simplest setup. Under current tax law, some self-employed individuals are entitled to tax breaks comparable to, or even better than, incorporated small business owners. Here are seven prime examples.
1. Stay tax-healthy. For 2025, you as a selfemployed individual can write your health insurance premiums, including those incurred for yourself, your spouse and eligible dependents. This applies to health insurance, dental insurance and long-term care insurance (LTCI) premiums (subject to certain limits). Tip: The deduction is claimed “above the line” on personal tax returns. Accordingly, it reduces adjusted gross income (AGI) for other tax purposes.
2. Salt away money for retirement. As with corporations, self-employed individuals can benefit from contributing to tax-deferred retirement plans. There are several options, including Simplified Employee Pension (SEP) plans, SIMPLE-IRA plans, solo 401(k) plans and Keogh profit-sharing plans. Tip: Retirement plan contributions made by self-employed individuals are deductible above the line.
3. Seize QBI deduction. The Tax Cuts and Jobs Act (TCJA) authorized a deduction of up to 20% of the qualified business income (QBI) earned by a self-employed individual during the year. However, under a tricky set of rules, the deduction is phased out for taxpayers with income over specific dollar thresholds. Special rules apply to income from a “specified service trade or business” (SSTB). This includes business conducted by most personal service providers like physicians. Tip: The QBI deduction is scheduled to expire after 2025 unless Congress extends it.
4. Be a homebody. Currently, you can’t deduct home office expenses—for example, utilities, insurance, repairs, depreciation, etc.—if you’re a corporate employee, but self-employed individuals can claim a deduction attributable to business use of part of the home if they pass the applicable tests. To qualify, you must use the space regularly and exclusively as your principal place of business or as a place to meet or deal with clients, customers or patients in the normal course of business. Tip: A home office can also be your principle place of business if you conduct administrative and management chores there and don’t make substantial use of any other fixed location (like another office downtown) for these chores.
5. Steer past tax roadblocks. Even if you use a vehicle for some personal driving, you can deduct the vehicle’s costs attributable to business travel, based on the percentage of business use. This can include a depreciation write-off. Tip: In lieu of keeping records of every actual vehicle expense, you may use a simplified method of 70 cents per business mile for 2025 business travel (plus business-related tolls and parking fees).
6. Map out biz travel. If you travel away from home on business, you can deduct qualified travel expenses—including round-trip airfare, lodging and 50% of the cost of meals—if the primary purpose of your trip is businessrelated. You can still qualify for write-offs if you add a few personal days onto a weeklong trip. Tip: The cost attributable to personal pursuits, like sightseeing or golfing, is nondeductible.
7. Write off “payroll taxes.” Finally, a selfemployed individual is responsible for paying self-employment tax, the equivalent of federal payroll tax on employee wages. You can deduct half the self-employment tax hit as an above-the-line write-off on your Form 1040. Tip: The wage base for 2025 is $176,100.
See what’s on Schedule C If you’re a self-employed individual, you must complete Schedule C, Profit or Loss from Business (Sole Proprietorship), and attach it to your federal income tax return. Alert: This will have a significant impact on your overall tax picture. Obviously, the lower your taxable income on Schedule C, the better the tax result. Make sure you deduct all the “ordinary and necessary expenses” of running the business. This can include supplies, insurance and professional fees, among others. Contact your tax pro for details.