- Self-employed individuals can deduct a number of business operating costs from their taxable income. A range of deductible costs tread the line between business and personal expenses. Entrepreneurs can deduct a portion of their fuel expenses if they are used for business purposes, for example, or a portion of their rent and utilities if they work from home. The direct cost of materials, supplies and inventory can be deducted from income tax, but any profit generated on those expenses is taxed just like personal income.
- Tax filers receiving compensation as regular employees cannot take advantage of the range of deductions geared toward entrepreneurs, but individuals can still claim numerous deductions. Some employees may be required to pay large expenses out of pocket without reimbursement, for example, qualifying them to deduct a portion of these expenses from their taxable income. Married taxpayers filing jointly gain the advantage of their combined allowable expenses, which can be beneficial in marriages with large income differences between spouses.
- A number of deductions apply to both self-employed and regular tax filers. All taxpayers can deduct a portion of their charitable contributions for the year, for example, as well as certain education-related expenses and financial losses incurred due to natural disasters and other casualties. IRS.gov also lists home mortgage points, medical expenses and interest expenses among the top 500 itemized deductions.
- The IRS provides spaces on income tax forms to list deductible expenses although some deductions require additional schedules or documentation. Schedule C of Form 1040, for example, helps self-employed filers to calculate their business profit or loss for the period, resulting in a value to list on Form 1040 itself. Regular tax filers can use Schedule A of Form 1040 to calculate their itemized expenses, again arriving at a single value to record on the main form.
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