Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager Chris Harrigan

UPDATED: Apr 13, 2022

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Key takeaways...

  • You can write off several direct and indirect expenses when you’re self-employed
  • If you drive your car for business, you can deduct car-related expenses
  • Depreciation, fuel, repair costs, registration fees, mileage, and insurance premiums can all be written off
  • By deducting these expenses, you can lower your income tax and self-employment tax liabilities

Being self-employed has its advantages. Not only do you create your own destiny, you also get to set your own schedule while you enjoy loads of tax write-offs.

From your housing expenses to the cost to furnish your home offer, there are plenty of ways to reduce your tax liability.

The key is to keep track of your expenses throughout the year and use the services of a tax professional whenever you’re at a loss.

As you learn how to jot down your deductions, you will quickly see how much your business expenses add up. When you use your vehicle for business purposes, you can always write off your mileage.

Not only is your mileage deductible, there’s a possibility that your car insurance premiums could be tax deductible as well.

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The Self-Employment Tax

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One of the drawbacks of filing your taxes when you’re self-employed is that you must pay both income taxes and a separate self-employment tax.

The self-employment tax is collected from self-employed taxpayers because these individuals don’t have employment taxes withheld to cover the Social Security and Medicare systems.

The tax rate for self-employed tax filers can change from year to year. Currently, the self-employment tax rate is 15.3 percent of your self-employment income earned.

This percentage consists of a 13.3 percent tax for Social Security and a two percent tax for Medicare. Collecting these taxes is your way of paying into these systems.

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How do you reduce your self-employment tax?

It’s possible to reduce how much you have to pay in taxes as an entrepreneur. Since you are both the employee and the employer, you need to be well-versed in tax law before you fill out the SE tax form.

There are tons of ways that you can eliminate your obligation to pay the tax or reduce your liabilities substantially.

Here are some ideas:

  • Form an S Corporation – receive business income in the form of dividends and then paying yourself a salary, only a portion of your earned income through the corporation is subject to a self-employment tax
  • Deduct your valid business expenses – deduct ordinary and necessary business expenses on the cost of things that were genuinely used to generate your income
  • Deduct your health insurance costs – deduct your health insurance premiums and other applicable costs for healthcare
  • Defer your income to keep tax rate lower – if you can arrange for some of your income to be received in January rather than December, you can legally reduce your earned income

What type of business expenses are deductible?


Not all business expenses are deductible but a majority are. When tax season comes around, it can be very challenging to schedule all of the expenses that you have accrued throughout the year if you didn’t keep tabs on everything from the start of the year.

As you’re notating your expenses in your ledger, you need to keep in mind that you can only deduct the business use of the expense.

You may not be able to write off absolutely everything, but you’ll be able to find an area that applies to you as you’re filling out a Schedule C for your 1040 tax form.

You should always separate your expenses into different categories when you’re organizing your files.

You should have a file for capital expenses, personal expenses, and the expenses incurred as you sell goods.

Here are expenses that fall into each category:

Expenses Associated with Cost of Goods Sold

  • The cost of the raw materials purchased to manufacture goods
  • Cost of freight
  • Contributions to employee pensions
  • Cost to store materials and final product
  • Direct labor costs for the employees who produce the products
  • All factory overhead costs

Capital Expenses

Not all costs are deductions. If you have a capital expense it is considered an investment into the business that will help the business flourish in the future. Some items that fit into this category include:

  • Start-up costs
  • Business assets
  • Improvements to properties

Indirect Business Expenses

You can never deduct personal or living expenses but you can deduct those that are related to business use. Many of the expenses that can lower your earned income and ultimately lower your tax burden are considered indirect business expenses.

Some of the many deductions to take advantage of include:

  • Materials for advertising
  • Promotional items
  • Costs for developing trade shows
  • Business insurance that protects your company
  • Actual car expenses for gas, registration, repairs, maintenance, and mileage
  • Depreciation of your business assets like computers, tools, furniture, and cars
  • Home office expenses for the business portion of mortgage or rent, utilities, and repairs that are needed to operate under a specific roof
  • Cost for meals and entertainment while out for business
  • Office expenses to maintain and clean an office space
  • Travel costs for hotels, rental cars, and other items when traveling for the purpose of doing business
  • Expenses to complete higher education or training
  • Banking fees and association dues

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Using a Personal Car for Business

If you are using your personal vehicle for business on a regular basis, you should always write down how many miles you have driven and how much you have spent on fuel or related expenses.

It is also very important that you write down how many miles you have put on your car for personal use or commutes to a different job.

When you list all of this information, you will be able to determine how much you use the car for business and how much you use it for personal use.

On your Schedule C, it will allocate the percentages. These percentages are very important because you will only be able to write-off the percentage of your car-related expenses that is found under the business use category.

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Can you write off your insurance premiums?


Insurance is one of those expenses you don’t want to cover simply because you never want to have to file a claim. It can be frustrating to pay hundreds of dollars every month for coverage that you’re hoping that you won’t need.

If you do need it, however, you will really regret not purchasing higher limits of protection.

When you’re employed by a company, you can’t write off your personal car insurance premiums in any way, shape, or fashion. When you’re self-employed, you can definitely maximize your deductions by writing off some or all of your auto insurance premiums.

How much can be written off depends on how much you pay for coverage, how much you drive, and how often you drive for business.

The percentage that is calculated for your car-related expenses is very useful when you’re determining how much of your premiums will bring down your taxable income.

If you input the numbers in your Schedule C and it says you use your vehicle 60 percent of the time for business, you can write off 60 percent of your car insurance premiums for that vehicle.

Writing off Business Car Insurance Premiums

You may have to buy business insurance on some vehicles. Typically, business car insurance is required on cars that are registered to your business or that are solely used for business purposes.

If you have business car insurance for a car that you use strictly to conduct business, 100 percent of the premiums can be written off.

Keep Receipts and Logs for Other Deductions


Driving your car for business can really help you rack up the deductions. There are so many different types of expenses that you can write off to lower your tax liability so that you don’t wind up paying hundreds or thousands to the state or the federal government.

Always keep track of your mileage so that you can either take the Actual Mileage Deduction or the Standard Mileage Deduction. If you have had repairs done or you have paid for regular maintenance, some of these costs will also be deductible.

With the right record keeping, you can keep your tax burden low.

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Always Purchase Sufficient Auto Insurance Coverage

You have to pay for your auto insurance premiums throughout the year but it will pay off at the end of the year.

You need to review your needs and determine how much liability coverage is sufficient.

If you are relying on your car to get the job done, you may even need to carry full coverage so that you’re never forced to close the doors for the day because you can’t afford to repair the car right away.

If you would like to find a good deal on your auto insurance, use the Internet to your advantage. You can easily price the cost of comprehensive policies by logging onto the world wide web and inputting your personal information into a quoting system.

Once you put your information in, you can compare rates for adequate coverage from some of the more respected companies in the industry.

Before making any final decisions on your insurance company, it is important to learn as much as you can about your local insurance providers, and the coverages they offer. Call your local insurance agent to clear up any questions that you might have. Questions to consider asking include, “What is the best coverage plan for me/my family/my situation?” “What are the minimum coverage requirements in my state and what form of coverage do you recommend?” “Do you guys offer any bundle discounts if I take out both my auto insurance and home insurance with you?” and “What is the average rate of insurance quotes you guys offer?”
Before making any big insurance decisions, use our free tool to compare insurance quotes near you. It’s simple, just plug in your zip code and we’ll do the rest!

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