Schedule C Deductions: Complete List for Self-Employed Business Owners (2026)

The difference between a $50,000 tax bill and a $35,000 tax bill often comes down to deductions. Not aggressive positions. Not gray areas. Just legitimate business expenses that sole proprietors routinely miss.

Most self-employed business owners know the obvious deductions. Office supplies, software, advertising. But Schedule C has over 20 expense categories, and within those categories are hundreds of deductible items that many freelancers and contractors never claim.

Every dollar you miss costs roughly 30-40 cents between income tax and self-employment tax. On $10,000 of overlooked deductions, that’s $3,000-$4,000 in unnecessary tax.

What expenses can you deduct on Schedule C?

You can deduct any ordinary and necessary business expense on Schedule C. This includes advertising, vehicle expenses, home office, supplies, professional services, insurance, travel, meals (50%), phone and internet, software subscriptions, education, and depreciation on equipment. The expense must be directly related to your business and properly documented. For 2026, the IRS standard mileage rate is 72.5 cents per mile, and the simplified home office deduction is $5 per square foot (up to 300 sq ft).

Key Takeaways

• Ordinary and necessary is the standard – The expense must be common in your industry and helpful for your business, not lavish or personal
• Documentation matters more than the deduction – Without receipts or records, deductions don’t survive an audit
• Home office offers two methods – Simplified ($5/sq ft, max $1,500) or Regular (actual expenses based on percentage of home used)
• Vehicle expenses require mileage logs – 72.5 cents per mile for 2026, or actual expenses if you track everything
• 100% bonus depreciation restored – Equipment and vehicles can be fully deducted in year of purchase (thanks to One Big Beautiful Bill Act)
• Meals are 50% deductible – Business meals with clients, prospects, or while traveling (not personal meals while working)

Schedule C Expense Categories: The Official List

The IRS Schedule C form has specific expense lines. Here’s what goes where:

Line 30 is for business use of home (home office deduction), calculated separately on Form 8829 or using the simplified method.

Most Commonly Missed Deductions

These are the deductions we see clients overlook most often:

1. Self-Employment Tax Deduction

You can deduct half of your self-employment tax as an adjustment to income. This isn’t on Schedule C but it directly reduces your AGI. If you owe $14,000 in SE tax, you deduct $7,000 on Schedule 1.

2. Health Insurance Premiums

Self-employed individuals can deduct 100% of health insurance premiums for themselves, their spouse, and dependents. This is an above-the-line deduction on Schedule 1, not Schedule C. It includes medical, dental, and qualifying long-term care insurance.

Requirements:

• You can’t be eligible for employer-sponsored coverage (including spouse’s plan)
• Deduction can’t exceed net self-employment income
• Premiums must be established under your business

3. Home Office Deduction

If you use a dedicated space in your home regularly and exclusively for business, you qualify for the home office deduction.

Simplified Method: $5 per square foot, up to 300 square feet = maximum $1,500 deduction

Regular Method: Calculate actual expenses (mortgage interest/rent, utilities, insurance, repairs) × percentage of home used for business

The regular method often produces a larger deduction for larger home offices but requires more record-keeping.

4. Retirement Plan Contributions

Contributions to SEP-IRAs, Solo 401(k)s, and SIMPLE IRAs reduce your net self-employment income. For 2026:

These contributions reduce both income tax AND self-employment tax. A $20,000 SEP contribution saves approximately $7,000-$8,000 in combined tax.

5. Business Use of Personal Vehicle

If you use your personal vehicle for business, you can deduct:

Standard Mileage Rate (2026): 72.5 cents per mile

OR Actual Expenses: Gas, insurance, repairs, depreciation × business use percentage

You need a mileage log either way. Record date, destination, business purpose, and miles for each trip. Apps like MileIQ or Everlance make this easier.

What counts as business miles:

• Driving to meet clients
• Going to the bank, post office, office supply store
• Travel between work locations
• NOT commuting from home to a regular office

6. Professional Development

Education that maintains or improves skills in your current business is deductible:

• Online courses and certifications
• Industry conferences (including travel)
• Books, subscriptions, professional publications
• Coaching and consulting services
• Professional association memberships

Education that qualifies you for a NEW trade or profession is NOT deductible.

7. Software and Subscriptions

Every software subscription you use for business belongs on Schedule C:

• Accounting software (QuickBooks, FreshBooks)
• Project management (Asana, Monday, Notion)
• Communication (Zoom, Slack)
• Design (Adobe Creative Cloud, Canva)
• Marketing (Mailchimp, ConvertKit, social media schedulers)
• Industry-specific tools
• Cloud storage (Dropbox, Google Workspace)

8. Bank Fees and Payment Processing

• Business bank account fees
• Credit card processing fees (Stripe, Square, PayPal)
• Wire transfer fees
• Merchant account fees
• Payment plan fees for software

9. Phone and Internet

You can deduct the business percentage of your phone and internet bills. If you use your phone 70% for business, 70% of the monthly bill is deductible.

For a dedicated business line, 100% is deductible.

10. Business Insurance

• General liability insurance
• Professional liability (errors & omissions)
• Product liability
• Business property insurance
• Cyber liability
• Business interruption insurance

NOT deductible on Schedule C: health insurance (goes on Schedule 1), life insurance.

Equipment and Depreciation: Section 179 and Bonus Depreciation

When you buy equipment, furniture, or vehicles for your business, you have options for how to deduct the cost.

Section 179 Expensing

Section 179 allows you to deduct the full cost of qualifying equipment in the year of purchase rather than depreciating over time.

2026 Limits:

• Maximum deduction: $1,250,000
• Phase-out threshold: $3,130,000

This applies to computers, office furniture, machinery, software, and certain vehicles.

Bonus Depreciation (100% Restored)

The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for assets placed in service after January 19, 2025. This means you can deduct the full cost of qualifying assets in the year of purchase.

Qualifying assets include:

• New and used equipment
• Computers and technology
• Office furniture
• Certain vehicles (with limits)
• Qualified improvement property

Vehicle Deductions

Vehicles have special rules. The Section 179 vehicle list shows which vehicles qualify for enhanced deductions.

Heavy vehicles (over 6,000 lbs GVWR): Up to $31,300 Section 179 deduction plus bonus depreciation

Passenger vehicles: Limited to $20,400 first-year depreciation cap for 2026

If you use a vehicle less than 100% for business, multiply all deductions by your business use percentage.

Travel and Meals: What Counts

Business Travel

Deductible travel expenses when traveling away from home for business:

• Airfare
• Hotels and lodging
• Rental cars
• Taxis, Uber, Lyft
• Parking and tolls
• Baggage fees
• Tips for services

“Away from home” means overnight or long enough to require rest. A day trip doesn’t count as travel even if you drive several hours.

Business Meals (50% Deductible)

You can deduct 50% of meal expenses when:

• Eating with a client, prospect, or business associate
• Traveling away from home for business
• Attending a business meeting, conference, or seminar

Not deductible: Lunch at your desk while working, meals alone (unless traveling), lavish or extravagant meals.

Documentation required: Date, amount, business relationship, business purpose. Write it on the receipt or log it in your accounting software.

Deductions That Require Extra Attention

Contract Labor (1099 Workers)

Payments to independent contractors are fully deductible. But you must:

• Issue Form 1099-NEC for payments of $600 or more
• Ensure workers are properly classified (not employees)
• Keep records of services performed

Misclassifying employees as contractors creates significant liability.

Business Gifts

You can deduct business gifts up to $25 per recipient per year. This includes holiday gifts, thank-you gifts, and referral gifts.

What counts toward the $25:

• Cost of the gift
• Engraving, gift wrapping
• NOT shipping

Bad Debts

If you use accrual accounting and a client doesn’t pay, you can deduct the amount as a bad debt. Cash-basis taxpayers (most sole proprietors) can’t deduct bad debts because the income was never recorded.

Start-Up Costs

If you started your business in 2026, you can deduct up to $5,000 of start-up costs immediately (if total start-up costs are under $50,000). Remaining costs are amortized over 15 years.

Start-up costs include:

• Market research
• Legal fees for formation
• Training
• Pre-opening advertising

What You CAN’T Deduct

Some expenses seem business-related but aren’t deductible:

• Commuting costs – Getting from home to your regular workplace
• Clothing – Unless it’s a uniform or protective gear you can’t wear outside work
• Personal portion of anything – Only the business percentage counts
• Fines and penalties – Traffic tickets, late fees to the IRS
• Political contributions
• Club memberships – Country clubs, athletic clubs (even if used for networking)
• First-time education – Courses that qualify you for a new profession

Documentation Best Practices

The IRS requires “adequate records” to substantiate deductions. Here’s what that means:

For Every Expense

• Amount
• Date
• Business purpose
• Payee

For Travel

• Dates, destinations
• Business purpose of the trip
• Days spent on business vs. personal

For Meals

• Date, location
• Who you met with
• Business relationship
• Topics discussed
• Amount

For Vehicle

• Date of trip
• Destination
• Business purpose
• Starting and ending odometer or total miles

Best practice: Capture receipts digitally (apps like Expensify, Receipt Bank, or your accounting software). Bank statements alone don’t prove business purpose.

Frequently Asked Questions

Can I deduct my internet bill if I work from home?

Yes, you can deduct the business percentage. If you use your internet 60% for business, deduct 60% of the monthly bill. If you have a separate line for business, deduct 100%.

What if I don’t have receipts?

The IRS accepts “other reliable written evidence” like bank statements and credit card records, combined with a log of business purpose. But receipts are far better protection in an audit.

Can I deduct business expenses if I didn’t make a profit?

Yes. Business losses can offset other income (like W-2 wages). However, if you show losses for several years in a row, the IRS may question whether your activity is a hobby rather than a business.

Are coworking space fees deductible?

Yes. Rent for coworking spaces, hot desks, and dedicated offices is deductible on Line 20b (Rent or lease, other business property).

Can I deduct the cost of my website?

Yes. Website development, hosting, domain registration, and ongoing maintenance are all business expenses. Development costs over $5,000 may need to be amortized rather than deducted immediately.

Organizing Your Deductions for Tax Time

The easiest way to maximize deductions is tracking them throughout the year:

1. Use a dedicated business bank account and credit card – Separates personal and business spending automatically
2. Categorize transactions weekly – Waiting until year-end means forgotten expenses and missing receipts
3. Capture receipts immediately – Phone photo to accounting software or receipt app
4. Review monthly – Catch miscategorized expenses before they compound
5. Reconcile quarterly – Match bank statements to your records, identify gaps

If bookkeeping isn’t your strength, professional bookkeeping services pay for themselves in found deductions and time saved.

Next Steps

Schedule C deductions directly reduce both your income tax and self-employment tax. A systematic approach to tracking and categorizing expenses captures deductions you’d otherwise miss.

If you’re unsure whether an expense qualifies, the general rule is: if it’s ordinary for your industry and necessary for your business, it’s likely deductible. Keep documentation, and ask your CPA about gray areas before filing.

Schedule a consultation to ensure you’re capturing every deduction your business qualifies for.