Freelancer Tax Basics: Schedule C, Self-Employment Tax, and What You Can Deduct

If you receive a 1099-NEC (or should receive one) instead of a W-2, you’re an independent contractor. The IRS treats your freelance work as a sole proprietorship, reported on Schedule C of your personal Form 1040. You’re responsible for your own income tax and self-employment tax, and you get to deduct business expenses that W-2 employees lost access to after the Tax Cuts and Jobs Act eliminated the employee business expense deduction in 2018.

How does Schedule C work?

Schedule C has five parts. Part I reports gross income (total 1099-NEC income plus any income not reported on a 1099). Part II lists deductions (advertising, car expenses, insurance, office expenses, supplies, travel, meals, etc.). The difference between gross income and total deductions is net profit (or net loss), which flows to two places on the 1040: line 8 (other income, as part of total income) and Schedule SE (for calculating self-employment tax).

If the freelancer has multiple unrelated freelance activities (writing and web design, for example), they can file separate Schedule Cs for each activity. This isn’t required, but it provides cleaner record-keeping and a clearer picture of each business’s profitability.

What’s self-employment tax and why is it so high?

When you work as an employee, your employer pays half of FICA (7.65%) and you pay the other half (7.65%) through payroll withholding. As a freelancer, you pay both halves: 15.3% total. This is the self-employment tax, calculated on Schedule SE.

The SE tax applies to 92.35% of net SE income (the 92.35% factor accounts for the employer-equivalent portion of the tax). On the first $168,600 of adjusted net SE income (2024), the rate is 15.3% (12.4% Social Security + 2.9% Medicare). Above $168,600, only the 2.9% Medicare tax applies. Above $200,000 single / $250,000 MFJ, an additional 0.9% Medicare surtax applies.

Half of the SE tax is deductible as an above-the-line adjustment on Form 1040, meaning it reduces adjusted gross income (AGI) but not the SE tax itself.

What can freelancers deduct?

Home office: If you work from a dedicated space in your home (see the exclusive-use and regular-use requirements under IRC 280A), deduct either $5/sq ft (simplified, max $1,500) or the actual business percentage of your home expenses.

Vehicle: If you use your personal vehicle for business (driving to client meetings, picking up supplies, traveling to coworking spaces), track mileage and deduct at the standard mileage rate (67 cents/mile for 2024) or use the actual expense method. Commuting from home to a regular office doesn’t qualify, but if your home office is your principal place of business, trips from home to client sites are business mileage.

Equipment and supplies: Computers, monitors, printers, cameras, drawing tablets, software licenses, office supplies, and furniture used for business. Items over $2,500 can be deducted immediately under the de minimis safe harbor election, or depreciated over their useful life. Items over $2,500 can be expensed under Section 179 (up to $2,500,000 for 2024) or 100% bonus depreciation (permanently restored under OBBBA).

Software and subscriptions: Adobe Creative Cloud, project management tools (Asana, Trello, Monday), accounting software (QuickBooks, FreshBooks), cloud storage (Dropbox, Google Workspace), design tools, stock photo subscriptions, and any other software used for business.

Professional development: Courses, workshops, certifications, conferences, and books related to your freelance work. Travel to conferences is deductible (airfare, hotel, ground transportation, and 50% of meals).

Health insurance: Self-employed health insurance premiums (medical, dental, vision) for the freelancer, their spouse, and their dependents are deductible as an above-the-line adjustment on Form 1040. This deduction is not available on Schedule C (it doesn’t reduce SE tax) but it does reduce income tax and AGI.

Retirement plans: Contributions to a SEP IRA, Solo 401(k), or SIMPLE IRA are deductible above-the-line. The SEP allows up to 20% of net SE income (after the SE deduction). The Solo 401(k) allows a $23,500 employee deferral (2025) plus 20% employer contribution.

Professional services: Accounting fees, legal fees, bookkeeping services, and tax preparation fees related to the business. The cost of hiring a CPA to prepare Schedule C is deductible on Schedule C.

Marketing and advertising: Website hosting and design, business cards, online advertising, portfolio site subscriptions, social media advertising, and promotional materials.

Meals: Business meals with clients or prospects are 50% deductible. The freelancer must document the business purpose, the attendees, and the amount. Meals while traveling for business are also 50% deductible.

What about the Qualified Business Income deduction?

The QBI deduction under IRC 199A allows freelancers to deduct up to 20% of their qualified business income from their taxable income. This deduction is taken on Form 1040 (not on Schedule C) and doesn’t reduce SE tax. For most freelancers with taxable income below $191,950 single / $383,900 MFJ (2026), the full 20% deduction is available regardless of the type of business.

Above those income thresholds, the deduction may be limited if the freelance activity is a “specified service trade or business” (SSTB). Consulting, law, accounting, health care, financial services, performing arts, and athletics are SSTBs. Writing, graphic design, photography, web development, and most creative freelance work are generally not SSTBs (they involve the production of goods or the delivery of specific work product, not the provision of personal services where the principal asset is the freelancer’s reputation or skill, though the boundary is not always clear).

When should a freelancer consider the S-Corp election?

When net SE income consistently exceeds $80,000-$100,000, the S-Corp election begins to save money by reducing the amount of income subject to payroll tax. The trade-off is higher compliance costs (payroll, separate tax return, reasonable compensation requirements).

Below $80,000, the compliance costs of the S-Corp typically exceed the payroll tax savings. The breakeven depends on the cost of payroll processing and tax preparation in the freelancer’s market.

Related guides:

• Tax Planning for Freelancers and Gig Economy Workers: A Complete Guide

• 1099 reporting requirements for freelancers, what you receive, what you issue, and how to handle discrepancies

• Estimated taxes and quarterly payments, the payment schedule, safe harbor rules, and how to avoid penalties

• Health insurance deduction for freelancers, how to deduct 100% of premiums and the Premium Tax Credit interaction

• Retirement plans for freelancers, SEP IRA vs. Solo 401(k) contribution limits and the plan that fits your income

• S-Corp election for freelancers, the income threshold where the payroll tax savings exceed the compliance costs

• Home office deduction for freelancers, simplified vs. actual method and how the deduction reduces both income tax and SE tax

• Business vs. hobby: how the IRS nine-factor test works

• QBI deduction for freelancers under IRC Section 199A

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.