The short answer: A business expense is a cost that is ordinary and necessary for your kind of work, and that you actually paid for the business. If it helps you earn income in your trade, it probably belongs on Schedule C. If it is mostly personal, it does not.
That sounds simple, and often it is. The trouble starts in the gray areas, so let’s walk through them.
What "ordinary and necessary" means
The IRS uses those two words a lot. “Ordinary” means it is common and accepted in your line of work. “Necessary” means it is helpful and appropriate for the business. It does not have to be absolutely required. A graphic designer paying for software, a driver paying for a phone mount, a landscaper buying a mower: all ordinary and necessary.
If you are not sure, ask yourself two questions. Would other people doing my kind of work spend money on this? And did I spend it to earn income, not just for my own enjoyment?
Common expenses self-employed people deduct
- Supplies and materials
- Software, subscriptions and website costs
- Advertising and marketing
- Business insurance
- Professional fees
- Phone and internet, for the business share of the bill
- Vehicle costs for business driving (see our article on records for vehicles, home office and equipment)
- Equipment and tools
- Education that keeps up your skills in your current trade
- Fees you pay to platforms or payment processors
The mixed-use problem
Plenty of things serve both your business and your life: a phone, a car, a laptop, a room in your home. For those, you deduct only the business share. If your phone is used for the business about half the time, about half the bill is a reasonable starting point. The key is being able to explain how you got your number.
Meals, gifts and entertainment
These get extra scrutiny. Business meals are generally only partly deductible, and entertainment is generally not. Keep a note of who you met with and why. The percentages and rules have changed over the years, so we check the current rule each season.
What does not belong on Schedule C
- Personal groceries, clothes and everyday living costs
- Commuting from home to a regular workplace
- Fines and penalties
- Your own paycheck. A sole proprietor does not pay themselves wages. What you take out of the business is not an expense.
- Costs for a hobby that is not run to make a profit
Start-up costs and big purchases
Money spent before your business opens is treated differently from regular expenses, and big purchases like equipment are often deducted over time or under special rules. Bring those up early. They are worth planning around, not stumbling into in April.
A few examples to make it real
- A freelance photographer buys a new lens. Ordinary and necessary, so it belongs on Schedule C, though a big purchase like this may be deducted over time or under special rules.
- A delivery driver pays for a phone plan used for both deliveries and family calls. Only the business share belongs on the return.
- A consultant buys a nice dinner for a friend with no business talk. That is personal, not a business meal.
- A seller pays platform fees and shipping on every order. Those are business expenses, and they add up fast, so they are worth tracking.
When you are not sure, write it down
If an expense is borderline, jot down a sentence on why you made it. “Bought the booth fee for the craft fair where I sold my products” is plenty. Bring the question to us before you file, and we will help you decide how to treat it.
Keep proof
A deduction you cannot back up is a deduction at risk. Keep receipts, statements and a quick note on the business reason for anything unusual. A photo of a receipt is fine.
Where to read more
The IRS explains this in Publication 535, Business Expenses, and in the Schedule C instructions.
Your next step
Self-employed and not sure what to include? Request your tax organizer and tell us what you do. We will help you sort what goes on Schedule C. You can read more on our self-employed page or the Business & Self-Employed overview. We reply to email and online requests the same business day.