So, what are tax write offs, really? A tax write-off is simply a legitimate expense you can deduct from your income to lower your taxable earnings. Think of it as a way to tell the IRS, “Hey, I spent this much on my business, so I shouldn’t be taxed on it.”
For individuals and especially businesses, tax write-offs are essential to reducing the amount of money owed at tax time. Whether you’re self-employed, a freelancer, or a small business owner, write-offs help improve your cash flow and reduce the sting of taxation.
Understanding how tax write-offs work doesn’t require a CPA license, it’s all about math and documentation.
When you incur a business expense, you can subtract that amount from your total income. This reduced figure is what the IRS taxes you on. For example, if you earn $60,000 a year and have $10,000 in legitimate business expenses, your taxable income becomes $50,000.
Tax write-offs vary in how much they can save you, but what’s for sure is that they can add up to serious savings.
Let’s say you have tax write-offs that total $6,500—what the average Everlance user finds effortlessly—and you made $55,000 during that tax year as a self-employed person. The tax write-offs would mean that only $48,500 of your income was taxable, meaning you’d pay less in state and federal taxes. In short, tax deductions reduce how much taxes you will owe by reducing your taxable income. This means more money stays in your pocket.
Want to estimate your taxes? Visit our Tax Calculator.
Tax deductions and write-offs reduce your taxable income. They could even lower you into a different tax bracket, but regardless it will mean that you’ll owe less in taxes.
Let’s do the math!
Let’s say you have tax write-offs that total $6,500—what the average Everlance user finds effortlessly—and you made $55,000 during that tax year. The tax write-offs would mean that only $48,500 of your income was taxable, meaning you’d pay less in state and federal taxes. In short, tax deductions reduce how much taxes you will owe by reducing your taxable income. This means more money stays in your pocket.
Your tax situation is unique—just like you! Your effective tax rate will depend on your filing status and many other factors.
Want to estimate your taxes? Check out our Tax Calculator!
There are two ways to claim your deductions, either the standard deduction or itemizing your deductions. There are pros and cons to each approach.
There are two approaches to deductions for your federal income tax return: the standard deduction or itemizing deductions. No matter what, deductions reduce your taxable income.
The standard deduction depends on various factors, including the year, your filing status, your age, etc.
The standard deduction is more straightforward and takes less time to claim, but it may mean you are paying more than you would if you itemized your qualified deductions. And if you itemize your deductions, you’ll need IRS-compliant proof—that’s where a mileage and expense tracker like Everlance comes in handy.
This decision is easier than it may seem. Here is how to determine which method you should use:
Still not sure? Visit the IRS’s discussion of this exact topic for more information.
Self-employed individuals can deduct their non-commuting business mileage. This mileage includes miles that you drive to your first delivery pickup, between deliveries, and back home at the end of the day.
This deduction is why it’s essential to track mileage for taxes. When using the Standard Mileage Rate, all you have to do is use Everlance to track your miles, and we automatically calculate the amount you can deduct.
Please note, you can’t deduct both gas and mileage at the same time! You can think of the Standard IRS Mileage Rate as the average cost to use your car for work purposes. This rate includes the cost of maintenance, petrol, car payments, car insurance, and depreciation.
Pro Tip: Using the mileage deduction usually means you can deduct more from your business income than you would if you had deducted all of your individual car expenses! Meaning you save more in taxes! You also don’t have to keep track of gas and maintenance receipts in addition to your mileage log.
If you can’t do your job without a phone, lots of data, and some essential accessories, then this is a deduction to consider. For example, if you drive for work, a car charger and phone mount are necessary and deductible. But be careful—if you use this for work and personal, you can only deduct the “work percentage.”
For example, if you use your phone for personal 70% of the time and work 30% of the time, you’d deduct 30% of your phone and related expenses.
We understand it might be challenging to estimate how much of your phone usage is for work. We recommend going through your phone records for a typical month and look at how much of your data/phone calls occur during work hours and apply the average to the rest of the year.
You might be able to deduct your health insurance premiums. To do this as a self-employed person, you must have had a net profit reported on your Schedule C or Schedule F.
While employees often have access to their company’s private healthcare, most self-employed workers end up purchasing health insurance, dental, and long-term care premiums independently.
However, thanks to the Self-Employed Health Insurance Deduction, you can reduce your Adjusted Gross Income (AGI) by deducting the cost of your monthly health insurance payments.
It’s available to you if:
If you meet these requirements, you can deduct the amount you pay for health insurance. However, the deduction cannot exceed the revenue generated from your business (when the revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the company).
Here’s an example: Let’s say you make $4,000 from driving for Shipt this year, and you had $500 in business expenses. If you pay $3,600 per year for a health insurance plan for you and your family, then you can only deduct $3,500 of that $3,600. (Your AGI – your business expenses).
For detailed information on this deduction, visit the IRS’s publication on deductions.
Your work-related education expenses may be tax-deductible. If you are taking educational courses to be better in your work, these are tax write-offs. Remember to save your receipts for these costs—or, even easier, use Everlance to find your deductions in your bank records automatically.
As long as your income exceeds your expenses and you have a home office that you only use for work, you can deduct expenses related to your work use of your home. Those expenses could include telephone lines, the Internet, and other costs to do business. It’s essential to have documentation that can prove these work costs if the IRS requires you to document this.
It's really simple, find and use a deduction finder that you like!
For example, Everlance is the #1 mileage and expense tracker. With Everlance, you’ll quickly find tax deductions in three easy steps:
It’s important to remember to deduct only allowable expenses. If you break the rules and evade taxes, there are serious consequences, like an audit, fees, and possibly jail time.
The general rule from the IRS is that “you cannot deduct personal, living, or family expenses.”
But keep this in mind: if you use something for business and personal purposes, divide the total cost between these and deduct only the business part.
For more information, visit the IRS’s discussion.
Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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