Schedule C Deductions: What Sole Proprietors and Single-Member LLCs Can Write Off

What Schedule C Covers

Schedule C is the tax form for self-employment income and expenses. It is filed as part of Form 1040 by sole proprietors and single-member LLCs that have not elected corporate treatment. Net profit, income minus allowable deductions, is subject to income tax and self-employment tax.

Because SE tax is 15.3% on net profit up to the Social Security wage base, every dollar of legitimate deduction reduces both income tax and SE tax. The combined savings on a deductible expense is often higher than most owners expect.

Schedule C Deductions, Line by Line

Business expenses are deductible if they are ordinary and necessary for your trade or business, and Part II of Schedule C organizes them onto lines 8 through 27a. The line an expense lands on does not change the tax you owe; what matters is that the expense is real, business-related, and documented. But knowing where things belong keeps the return consistent from year to year and makes an IRS notice far easier to answer.

Line 8: Advertising. Digital ads, social media promotion, website design and hosting, business cards, signage, sponsorships, and promotional merchandise. If the cost exists to bring in customers, it belongs here.

Line 9: Car and truck expenses. The business-use portion of vehicle costs, using either the standard mileage rate or actual expenses. This line has enough moving parts that it gets its own section below.

Line 10: Commissions and fees. Sales commissions and referral fees paid to people who are not your employees. Marketplace and platform selling fees are often reported here as well, though many preparers use line 27a; either placement is defensible.

Line 11: Contract labor. Payments to freelancers and independent contractors who perform services for the business. You must issue Form 1099-NEC to unincorporated contractors once payments reach the reporting threshold ($600 for 2025 payments; $2,000 beginning with payments made in 2026). Contract labor is for people doing the work of the business; your attorney and accountant go on line 17 instead.

(Line 12, depletion, applies to natural-resource businesses such as oil, gas, and timber, and is rarely relevant to a service or retail Schedule C.)

Line 13: Depreciation and Section 179. Equipment, machinery, furniture, computers, and vehicles claimed under regular depreciation, Section 179, or bonus depreciation, calculated on Form 4562. Small purchases can skip this entirely: under the de minimis safe harbor, items costing $2,500 or less per invoice can be expensed directly on the appropriate line (supplies or office expense) with no depreciation schedule. For the big-ticket version of this line, including vehicles over 6,000 pounds, see our guide to the Section 179 vehicle deduction .

Line 14: Employee benefit programs. Health insurance, accident coverage, and similar benefits you provide to employees. Not your own health insurance: the owner’s premiums are an above-the-line deduction on Form 1040, covered in the FAQ below.

Line 15: Insurance (other than health). General liability, professional liability (E&O), commercial property, workers’ compensation, cyber, and business interruption coverage. Vehicle insurance belongs on line 9, and only if you use the actual expense method.

Line 16: Interest. Line 16a is mortgage interest on real estate the business owns (reported to you on Form 1098); line 16b is everything else: business loans, equipment financing, and interest on business credit card balances. Your personal home mortgage never goes here, even with a home office; that portion flows through Form 8829.

Line 17: Legal and professional services. Attorneys, CPAs, bookkeepers, and consultants advising the business. The portion of your tax preparation fee attributable to the Schedule C is deductible here.

Line 18: Office expense. The administrative catchall: postage, printer ink, paper, small office equipment, and, in common practice, software subscriptions and cloud tools (line 27a is equally accepted for software). The dividing line with supplies is what the item is for: office expense is overhead that keeps the office running; supplies are consumed delivering your product or service.

Line 19: Pension and profit-sharing plans. Contributions you make to retirement plans for employees. A trap worth knowing: your own contributions as the owner to a solo 401(k) or SEP IRA do not go here. They are an above-the-line deduction on Schedule 1, which means they reduce income tax but not self-employment tax.

Line 20: Rent or lease. Line 20a covers leased vehicles, machinery, and equipment; line 20b covers business property: office space, storage units, a coworking membership. The home office does not go here either; it has its own line.

Line 21: Repairs and maintenance. Costs that keep property working: fixing equipment, servicing machinery, patching the shop roof. Improvements that make something better, bigger, or longer-lived get capitalized and depreciated on line 13 instead of deducted here.

Line 22: Supplies. Consumables used in the business: job materials, small tools, packaging, and the everyday items your work goes through.

Line 23: Taxes and licenses. Business licenses and permits, state LLC annual report fees, business personal property tax, and the employer share of payroll taxes if you have employees. Not your federal income tax, and not your self-employment tax; neither is deductible here (half of SE tax is deducted on Schedule 1, covered below).

Line 24: Travel and meals. Line 24a is travel away from home overnight: airfare, lodging, rental cars, rideshares. Line 24b is business meals, which are generally 50% deductible: meals with clients and prospects, and meals while traveling for business. The 80% figure you may see applies only to transportation workers subject to DOT hours-of-service limits, such as long-haul drivers. Entertainment (event tickets, golf, club outings) has not been deductible since 2018, even with a client in tow.

Line 25: Utilities. Electric, water, gas, trash, internet, and phone service for a business location. Utilities for a home office flow through the home office calculation, not this line. A mixed-use cell phone is deductible for the business-use portion, commonly reported here or on line 27a, with the allocation documented.

Line 26: Wages. W-2 wages paid to employees. As a sole proprietor you cannot put yourself on payroll; the money you take out of the business is a draw, not a deductible wage. Wages paid to your children can be legitimate and are one of the more useful small-business strategies when the work and the pay are real.

Line 27a: Other expenses. Everything ordinary and necessary that lacks a printed line, itemized by name in Part V: bank fees, merchant processing, professional dues, trade publications, continuing education that maintains or improves skills in your current trade, and business gifts (capped at $25 per recipient per year). Name each category specifically in Part V; a single large “miscellaneous” entry is an audit flag.

Below Part II, line 30 carries the home office deduction, calculated on Form 8829 or under the simplified method. It is significant enough to deserve its own section.

Home Office Deduction

A home office deduction is available when part of your home is used regularly and exclusively for business, and that space is your principal place of business or a place where you regularly meet clients.

The regular-and-exclusive-use requirement is strict. A desk in the corner of a bedroom that also serves as a guest room does not qualify. A dedicated room used only for work does.

Simplified method:

Deduct $5 per square foot of dedicated workspace, up to 300 square feet. Maximum deduction is $1,500 per year. No depreciation tracking required. The deduction cannot create a Schedule C loss under this method.

Actual expense method:

Deduct a percentage of your home’s actual costs, rent or mortgage interest, property taxes, utilities, homeowner’s insurance, and repairs, equal to the ratio of the office space to the total home square footage, calculated on Form 8829. More calculation required, but often produces a significantly larger deduction for homeowners. Depreciation on the business-use portion of the home is included and tracked. Unlike the simplified method, actual expenses that exceed your business income are not lost; they carry forward on Form 8829 to future years.

Note: If you use the actual method and deduct depreciation, there will be depreciation recapture when you sell the home. The simplified method avoids this.

How it interacts with mortgage interest on Schedule A. Under the actual method, the business-use percentage of your mortgage interest and property taxes moves to Form 8829, and only the remainder stays on Schedule A if you itemize; the same dollar is never deducted twice. Under the simplified method, all of your mortgage interest and property taxes stay on Schedule A, and the $5-per-square-foot amount comes on top. For owners who take the standard deduction, the actual method has a quiet advantage: it converts a slice of mortgage interest that would otherwise produce no tax benefit into a business deduction that reduces both income tax and SE tax.

Vehicle Deductions

Business use of a vehicle is deductible, but only the portion used for business, and only with adequate documentation.

Standard mileage rate:

Deduct a fixed rate per business mile. The 2025 rate is 70 cents per mile. Simple to apply. Requires a mileage log.

Actual expense method:

Deduct a percentage of all vehicle costs, gas, insurance, registration, repairs, depreciation, equal to the business-use percentage for the year. Often produces a larger deduction for expensive vehicles or vehicles with high operating costs.

Method selection:

You must choose a method in the first year the vehicle is used for business. If you take standard mileage in year one, you can switch to actual in a later year. If you use the actual expense method with accelerated depreciation (Section 179 or bonus depreciation) in year one, you generally cannot switch to standard mileage later.

Documentation:

The IRS requires a contemporaneous mileage log: date, destination, business purpose, and miles for every business trip. Year-end estimates or reconstructed records are weak documentation. A simple phone app updated in real time is sufficient.

Heavy vehicles. If the vehicle has a gross vehicle weight rating over 6,000 pounds, a work truck, cargo van, or large SUV, the actual expense method opens the door to Section 179 and bonus depreciation, which can front-load most or all of the purchase price into year one. The weight rules, qualifying vehicle list, and recapture traps are covered in our guide to the Section 179 vehicle deduction .

Self-Employment Tax and the SE Tax Deduction

Net Schedule C income is subject to self-employment tax:

• 15.3% on net earnings up to the Social Security wage base ($176,100 for 2025)
• 2.9% on net earnings above that amount
• An additional 0.9% Medicare surtax applies to earnings above $200,000 for single filers

SE tax funds Social Security and Medicare in the same way that payroll taxes do for employees.

The SE tax deduction:

You can deduct 50% of the SE tax you owe as an above-the-line deduction. This deduction does not appear anywhere on Schedule C; it is claimed on Schedule 1 of Form 1040. But it exists only because of your Schedule C income, and it is calculated directly from the SE tax on that income. It does not reduce the SE tax itself; it reduces your adjusted gross income, which in turn reduces the income tax you owe.

Self-employed health insurance:

Premiums paid for health insurance for yourself, your spouse, and dependents are deductible as an above-the-line deduction on Form 1040, not on Schedule C. The deduction is limited to net profit from the business and is not available in months when you were eligible for employer-sponsored coverage through a spouse’s plan.

Qualified Business Income (QBI) Deduction

Sole proprietors and single-member LLC owners with qualified business income may be eligible to deduct up to 20% of that income under Section 199A. The deduction reduces taxable income on the Form 1040, it does not reduce self-employment income. Like the SE tax deduction, it is not claimed on Schedule C, but Schedule C net profit is exactly the income that generates it. The mechanics, phase-outs, and planning angles are covered in our full guide to the QBI deduction .

Key limitations:

• The deduction phases out for certain specified service trades or businesses (professional services including accounting, law, consulting, financial services, and others) at higher income levels
• At higher incomes, the deduction may be limited by W-2 wages paid and unadjusted basis of qualified property, a factor that typically does not help Schedule C filers who have no employees
• The deduction cannot exceed 20% of taxable income (before the deduction)

For Schedule C businesses that are not specified service trades, the QBI deduction is often available in full at lower and moderate income levels. For service businesses and higher-income filers, the calculation becomes more complex.

What You Cannot Deduct

The list of non-deductible items is shorter than the deduction list, but these are the ones that show up on returns anyway and get unwound in an audit:

• Commuting. Travel between home and a regular workplace is personal, no matter how the vehicle is branded or what equipment it carries. Only a qualifying home office changes the starting point.
• Personal expenses mixed with business. A family phone plan, a home internet bill, or a vacation with one client meeting attached is deductible only to the extent of documented business use. When personal and business are mixed, allocate and keep the support; deducting 100% of a mixed-use cost is one of the most common Schedule C adjustments.
• Clothing, unless it is a uniform. Clothing is deductible only when it is required for the work and not suitable for everyday wear: a branded uniform, safety gear, steel-toed boots. A suit worn to client meetings is not deductible, however exclusively you wear it for work.
• Fines and penalties. Parking tickets, traffic fines, IRS and state penalties. Never deductible, even when incurred on business trips.
• Political contributions and lobbying. Donations to candidates, parties, and PACs are not business deductions. (Charitable donations generally belong on Schedule A, not Schedule C, unless the payment is really advertising with a business benefit.)
• Entertainment. Tickets, golf, and club dues have not been deductible since 2018. The meal portion of an outing can still qualify at 50% if it is separately invoiced or stated.
• Your own federal income tax and SE tax. Neither is a business expense. Half of SE tax is deducted on Schedule 1, as covered above, but the tax itself never appears on Schedule C.

Recordkeeping

The deductions above are only as good as the records behind them. The IRS can audit Schedule C returns for up to three years (longer if there are significant underreporting issues), so records need to be maintained at least that long.

Basic practices:

• Separate business and personal bank accounts
• Save all receipts for deductible expenses
• Keep a mileage log updated in real time
• Document business purpose for travel, meals, and education
• Track home office square footage and take photos if the space ever changes

Last updated: 2026