Income tax deductions can reduce the self-employment tax liability. These deductions are intended to make sure self-employed people are treated in much the same way as employers and employees for Social Security and income tax purposes. Net earnings from self-employment are reduced by an amount equal to half of the individual’s total Social Security tax. This is similar to the way employees are treated under the tax laws because the employer’s share of the Social Security tax is not considered income to the employee. Also, half of a self-employed individual’s Social Security tax can be deducted on the face of the IRS Form 1040. This means the deduction is taken from gross income in determining adjusted gross income. It cannot, however, also be an itemized deduction and must not be listed on Schedule C.
Along with these deductions self-employed persons may deduct numerous business expenses including the cost of computers and computer-related equipment, furniture, office supplies, postage costs, and telephone bills. If the individual works from home, a home-office deduction may be advantageous. Additional potential deductions include business use of a car, health insurance, certain travel and entertainment expenses, 50 percent of meals and entertainment, and attorney and accounting fees that are directly related to the business.