5 Tax Deductions Sole Proprietors Often Miss

As a sole proprietor, tax season can be both stressful and confusing. With so many rules and regulations to navigate, it's easy to miss out on valuable deductions that could significantly reduce your tax burden. In this article, we'll explore five commonly overlooked tax deductions that could save you money and keep more of your hard-earned income in your pocket.

1. Home Office Deductions

Many sole proprietors work from home but fail to take advantage of the home office deduction. If you use part of your home regularly and exclusively for business, you may be eligible to deduct a portion of your housing expenses.

There are two methods to calculate this deduction:

• Simplified Method: Deduct $5 per square foot of your home office (up to 300 square feet)
• Regular Method: Calculate the percentage of your home used for business and apply that percentage to eligible home expenses (mortgage interest, insurance, utilities, repairs, etc.)

Many sole proprietors are hesitant to claim this deduction for fear of triggering an audit, but if you're legitimately entitled to it, you shouldn't leave this money on the table.

2. Vehicle Expenses

If you use your personal vehicle for business purposes (other than commuting), you can deduct those expenses. Like the home office deduction, you have two options:

• Standard Mileage Rate: For 2024, the rate is 67 cents per business mile driven
• Actual Expense Method: Track all vehicle expenses (gas, maintenance, insurance, etc.) and deduct the business percentage

Many sole proprietors only track obvious business trips like visiting clients, but forget to include business errands, travel to business meetings, or trips to the bank or post office for business purposes.

3. Technology and Equipment

The equipment you use for your business is fully deductible, but many sole proprietors overlook items they already owned before starting their business or items with mixed personal/business use.

Deductible technology and equipment may include:

• Computers, tablets, and smartphones (based on business use percentage)
• Software subscriptions and apps used for business
• Printers, scanners, and other office equipment
• Internet and phone services (business portion)

Under Section 179, you can often deduct the full cost of qualifying equipment in the year you purchase it, rather than depreciating it over several years.

4. Professional Development

Continuing education is essential for staying competitive, and these expenses are often tax-deductible. Many sole proprietors don't realize they can deduct:

• Professional courses and certifications
• Business books, journals, and subscriptions
• Webinars and online courses related to your industry
• Conferences and seminars (including travel expenses)
• Professional coaching and consulting

As long as the education maintains or improves skills needed in your current business (rather than qualifying you for a new profession), these expenses are generally deductible.

5. Health Insurance Premiums

If you're self-employed and not eligible for employer-sponsored health coverage (through a spouse's plan, for example), you can deduct 100% of your health insurance premiums as an adjustment to income rather than as an itemized deduction. This is a powerful tax benefit that many sole proprietors overlook.

This deduction can include premiums for:

• Medical insurance
• Dental insurance
• Vision insurance
• Long-term care insurance (with age-based limitations)

Additionally, you may be able to include premiums for your spouse and dependents.

Bonus Tip: Retirement Contributions

While not exactly "overlooked," many sole proprietors don't maximize their retirement contributions. Self-employed individuals can set up SEP IRAs, SIMPLE IRAs, or Solo 401(k) plans that allow for significant tax-deductible contributions, often much higher than traditional employee contribution limits.