A bigger refund comes from deducting expenses you're already allowed to claim but haven't yet

The IRS does not give self-employed people larger refunds as a reward. Your refund size is determined by how much you overpaid in taxes during the year minus what you actually owe. To get more money back, you need to lower your taxable income by claiming deductions you're legally may have access to to but currently missing. Most self-employed people leave money on the table because they don't track expenses carefully or don't know what counts.

The second lever is adjusting how much you send to the IRS each quarter. If you're paying too much in estimated taxes, you're giving the government an interest-free loan. Recalculating your quarterly payments based on actual income and deductions means less overpayment and a smaller refund—but more money in your pocket throughout the year, which is usually the better deal.

Key Takeaways

  • Self-employed people can deduct home office space, vehicle mileage, equipment, supplies, professional services, and a portion of health insurance premiums—but only if they track and document them.
  • The home office deduction uses either a simplified method (300 square feet × $5 per square foot, up to $1,500 per year) or actual expenses, and you must use the same method every year.
  • Vehicle deductions require either mileage tracking (you record each trip) or actual expense tracking (fuel, maintenance, insurance), but you cannot switch between methods mid-year.
  • Quarterly estimated tax payments are based on your previous year's income; if your income drops or deductions increase, recalculating these payments prevents overpayment.
  • Keeping receipts, invoices, and a mileage log is not optional—the IRS requires documentation if you are audited, and without it you lose the deduction.

Deductions most self-employed people miss

A home office deduction is one of the largest deductions people skip. You can claim it only if you have a dedicated space used regularly and exclusively for business—a corner of your kitchen does not count, but a spare bedroom or finished basement does. The IRS offers two methods: the simplified method (multiply your office square footage by $5 per square foot, capped at $1,500 per year) or actual expenses (rent or mortgage interest, utilities, insurance, repairs, depreciation). The simplified method is faster and requires no receipts. The actual expense method is larger if you own your home, but you must track every bill and it triggers depreciation recapture when you sell the house. Choose one method and stick with it every year.

Vehicle mileage is the second major miss. The IRS sets a standard mileage rate each year (it was 67 cents per mile for 2024 business driving). You deduct this by tracking every business trip in a log—date, destination, miles, and purpose. Do not estimate. The IRS audits mileage claims heavily, and without a contemporaneous log you lose the entire deduction. If you use the mileage method, you cannot also deduct fuel, maintenance, or insurance for that vehicle. If you prefer to deduct actual expenses instead, you must track those receipts and cannot switch to mileage mid-year.

Health insurance premiums for self-employed people are deductible as an above-the-line deduction, meaning you claim them whether you itemize or take the standard deduction. This includes premiums for yourself, your spouse, and your dependents. You cannot deduct premiums for any month in which you were may be able to access for employer-sponsored coverage through another job. Dental and vision insurance count. Medicare premiums do not.

Other commonly missed deductions include professional services (accountant fees, legal information, bookkeeping software), office supplies and equipment under $2,500, internet and phone bills (only the business-use portion), subscriptions and memberships related to your trade, and continuing education or training. Keep the receipts for all of these.

How to track expenses so you can actually claim them

Tracking only works if you do it as you go, not at tax time. Use a spreadsheet, accounting software like QuickBooks Self-Employed or Wave, or even a notebook—the format matters less than consistency. For mileage, use your phone's notes app or a dedicated mileage app; write down the date, starting location, ending location, miles, and business purpose the same day you drive. For other expenses, photograph or save the receipt and note what it was for.

Separate your business and personal spending. Open a business bank account and business credit card if you do not have them. This makes it obvious what is a business expense and what is not, and it makes your records defensible if audited. The IRS expects self-employed people to keep records for at least three years, and longer if you claim a home office (because of depreciation).

At the end of each quarter, add up your expenses by category. This number feeds into your estimated tax calculation and tells you whether you need to adjust your quarterly payments. If your expenses are higher than you expected, your taxable income is lower, and you may be overpaying in estimated taxes.

Recalculating estimated taxes to avoid overpayment

Self-employed people pay taxes in four quarterly installments: April 15, June 15, September 15, and January 15. The IRS calculates what you owe based on your previous year's income. If your current year income is lower or your deductions are higher, you are overpaying each quarter and will get a large refund—but you could have had that money now.

To recalculate, use IRS Form 1040-ES. Estimate your 2024 net profit (income minus deductions), multiply by the self-employment tax rate (15.3% for Social Security and Medicare), and divide by four. If this number is lower than what you are currently paying, you can reduce your next quarterly payment. You do not need permission; you straightforward pay the lower amount. If you underpay, you may owe a small penalty, but it is usually smaller than the interest you would earn on the money if you kept it.

Some self-employed people deliberately overpay to avoid the hassle of quarterly calculations or to force themselves to save. That is a choice, but it is not the most efficient use of your money. If you prefer a refund, that is fine—just know you are choosing to loan the IRS money interest-free.

The self-employment tax deduction and retirement contributions

You can deduct half of your self-employment tax (Social Security and Medicare) as an above-the-line deduction. This is automatic and does not require tracking, but it is worth knowing about because it reduces your taxable income. The IRS calculates this for you on Schedule SE.

Retirement contributions are one of the largest deductions available to self-employed people. A SEP-IRA lets you contribute up to 25% of your net self-employment income (after the self-employment tax deduction), with a cap of $69,000 for 2024. A Solo 401(k) allows both employee and employer contributions, with a higher total limit. These contributions reduce your taxable income dollar-for-dollar and grow tax-deferred. If you have not opened a retirement account, this is often worth more than any other deduction.

What the IRS actually requires you to prove

The IRS does not ask for proof unless you are audited. But if you are audited, you must produce documentation for every deduction you claimed. For mileage, this means a contemporaneous log—a spreadsheet or app record made at the time of the trip, not a reconstruction from memory months later. For home office, you need photos of the space and documentation of the square footage. For other expenses, you need receipts or invoices showing the date, amount, and what was purchased.

Credit card statements alone are not enough. The statement shows you spent money but not what you spent it on. Keep the actual receipt. For meals and entertainment (which have stricter rules), you need the receipt plus a note of who you met with and the business purpose.

Audits of self-employed people are rare but more common than audits of W-2 employees. The IRS focuses on people with high income, inconsistent deductions year to year, or deductions that seem large relative to income. If you are audited, having organized records makes the process faster and protects you from losing deductions you are may have access to to.

Frequently Asked Questions

Can I deduct my home internet if I work from home?

Yes, but only the business-use portion. If your internet bill is $100 per month and you use it 50% for business and 50% personal, you can deduct $50 per month. You must estimate this percentage reasonably. If you use the simplified home office method, you do not separately deduct utilities; the $5-per-square-foot rate includes them.

What if I did not track mileage all year—can I estimate for tax time?

No. The IRS requires a contemporaneous mileage log made at or near the time of each trip. A reconstruction from memory or credit card statements does not count. If you did not track, you cannot claim the deduction. This is why starting a log now, even mid-year, is better than nothing for the rest of the year.

Do I have to pay quarterly estimated taxes if I am self-employed?

You must pay if you expect to owe $1,000 or more in taxes for the year. If your income is very low or you have a spouse with W-2 income that covers your tax liability, you may not need to pay quarterly. Use Form 1040-ES to calculate what you owe.

If I open a SEP-IRA, does that reduce my refund?

Yes. A SEP-IRA contribution reduces your taxable income, which lowers your tax bill. If you have already overpaid in estimated taxes, a larger contribution means a smaller refund. But the tax savings usually make the contribution worth it, and you are building retirement savings at the same time.

Can I deduct business losses to get a refund if I made no income?

If you have business losses, you can use them to offset other income (like a spouse's W-2 wages or investment income). This can result in a refund. But the IRS requires that your business show a profit in at least three of five years, or it may reclassify it as a hobby and disallow the losses. Keep records showing you are operating as a real business, not a side hobby.