What Business Expenses Can a Freelancer Deduct?

Every dollar of legitimate business expense lowers the profit you pay tax on, so it pays to know what counts. There is no master list of approved purchases. Instead, the IRS uses a two-part test, and once you understand it, most decisions become straightforward.

1. The test: ordinary and necessary

Publication 334, the IRS tax guide for people who file Schedule C, says a business expense must be both ordinary and necessary:

• An ordinary expense is one that is common and accepted in your field of business.
• A necessary expense is one that is helpful and appropriate for your business. It does not have to be indispensable.

A graphic designer's design software is ordinary and necessary. So is a photographer's replacement lens, or a tutor's subscription to a scheduling app. A gaming console bought by an accountant is not, even if a client once played it.

2. Common categories Publication 334 discusses

Publication 334 walks through many types of deductible costs. Examples relevant to freelancers include advertising, bank fees, licenses and regulatory fees, repairs and maintenance, supplies and materials, utilities, and education expenses tied to the business. It also covers legal and professional fees, such as accountant fees, that are ordinary and necessary and directly related to operating your business; these are deductible on Schedule C. One exception it notes: legal fees paid to acquire business assets usually are not deducted, but added to the basis of the property.

Since Publication 535, Business Expenses, was discontinued after its 2022 revision, the IRS maintains a resource page that maps each business expense topic to its current publication or form. It is a useful index when you are unsure where a specific expense is covered.

3. Mixed business and personal costs

Many freelancer costs are partly personal. Publication 334's rule: if an expense is partly for business and partly personal, separate the two. The personal part is generally not deductible.

A worked example with a cell phone plan:

The business-use percentages need a reasonable basis, such as a sample month of call logs or time tracking, recorded somewhere you can produce later.

Phones have a specific rule worth knowing. Publication 587 states that the basic local telephone service charge for the first landline into your home is a nondeductible personal expense, while business long-distance calls on that line and a second line used exclusively for business are deductible.

4. Meals are limited

Publication 334 notes that deductions for business meal expenses generally remain limited to 50% of the cost. A $120 meal with a client that qualifies as a business meal produces a $60 deduction, not $120. Keep the receipt and note who attended and the business purpose.

5. Bigger items and special topics

Some costs follow their own rules rather than a simple same-year deduction:

• Car use has its own methods, standard mileage or actual expenses.
• Home office space has its own qualification tests and two calculation methods.
• Equipment that lasts more than a year may need to be depreciated rather than deducted all at once, depending on cost and elections.
• Self-employed health insurance is figured on Form 7206, which the IRS notes replaced a worksheet from the old Publication 535.

For each of these, the IRS resource page points to the specific publication or form.

6. Questions to ask before you buy

1. Is this common in your line of work? (ordinary)
2. Does it help the business earn income or run better? (necessary)
3. Will you also use it personally, and if so, what share is business?
4. Is it a long-lived item that may need to be depreciated instead of deducted at once?
5. How will you document it?

7. Records make the deduction real

An expense you cannot prove is an expense you may lose. Keep receipts, invoices, and bank or card statements, and write down the business purpose for anything that is not obvious. A separate bank account or card for business makes this far easier, because the statement becomes most of your record.

8. Key takeaways

• A deductible business expense must be ordinary (common in your field) and necessary (helpful and appropriate), not indispensable.
• Publication 334 covers common categories like advertising, supplies, utilities, licenses, and professional fees.
• Split mixed-use costs and deduct only the business share; $900 of phone service at 40% business use is $360.
• Business meals are generally limited to 50% of cost.
• The basic charge for the first home landline is never deductible; a dedicated second business line is.