Tax Deductions for Self-Employed Texans: The Complete List

If you are self-employed in Texas — whether you are a sole proprietor, single-member LLC, or independent contractor — you are entitled to deduct every ordinary and necessary business expense from your taxable income.

The problem is that most self-employed people do not know the full list. They deduct the obvious ones (supplies, software, maybe a home office) and miss the rest. The average self-employed person leaves $3,000–$8,000 in legitimate deductions on the table every year.

The IRS allows deductions for expenses that are "ordinary and necessary" for your business. Ordinary means common in your industry. Necessary means helpful and appropriate for your business.

You do not need to prove the expense was essential — just that it was a legitimate business expense. But you do need documentation: receipts, bank statements, mileage logs, or other records.

If you use part of your home exclusively and regularly for business, you can deduct a portion of your home expenses.

Two methods:

Simplified method: $5 per square foot of your home office, up to 300 square feet. Maximum deduction: $1,500/year.

Regular method: Calculate the percentage of your home used for business and apply that percentage to your actual home expenses — rent or mortgage interest, utilities, insurance, repairs, and depreciation.

Common mistake: Using the space for anything personal. The "exclusive use" requirement is strict.

Standard mileage rate: 70 cents per mile for 2026. Multiply your business miles by the rate. Requires a mileage log.

Actual expense method: Track all vehicle expenses and deduct the business-use percentage. More complex but potentially larger deduction for expensive vehicles.

Common mistake: Estimating mileage without a log. The IRS requires contemporaneous records.

If you pay for your own health insurance, you can deduct 100% of the premiums as an above-the-line deduction — even if you do not itemize. This also covers dental, vision, and long-term care insurance premiums for your spouse and dependents.

This is one of the most powerful tax reduction tools available to self-employed people.

SEP-IRA: Contribute up to 25% of your net self-employment income, maximum $72,000 for 2026. Fully deductible. You can make contributions up to the tax filing deadline (including extensions).

Solo 401(k): If you have no employees other than yourself, allows contributions up to $72,000 in 2026 plus a $7,500 catch-up if you are 50 or older.

Example: On $80,000 of net self-employment income, a $20,000 SEP-IRA contribution reduces taxable income to $60,000. At a 22% federal tax rate, that is $4,400 in tax savings.

Self-employed people pay 15.3% on net self-employment income. You can deduct half of your self-employment tax as an above-the-line deduction — calculated automatically on Schedule SE.

Equipment, machinery, computers, and certain software can be deducted in the year of purchase under Section 179, rather than depreciated over multiple years. The Section 179 deduction limit for 2026 is $1,250,000.

Premiums for business insurance are fully deductible: general liability, professional liability, business property, workers' compensation, and business interruption insurance.

Fees paid to professionals for business purposes are deductible: bookkeeping and accounting fees, tax preparation fees, legal fees for business matters, and consulting fees. See our bookkeeping services for what we offer.

Business-related education expenses are deductible if they maintain or improve skills required in your current business: online courses, books and subscriptions, professional conferences, and certification programs.

This is the biggest deduction many self-employed people do not know about.

The QBI deduction allows most pass-through business owners to deduct up to 20% of their qualified business income. For a business with $100,000 in net income, that is a $20,000 deduction.

For most small businesses under the income thresholds ($197,300 single / $394,600 married filing jointly for 2026), the full 20% deduction is available. This deduction is calculated on Form 8995.

Texas has no state income tax, which simplifies your state tax picture significantly. But Texas business owners still need to be aware of:

Texas Franchise Tax: Most LLCs, S-Corps, and partnerships operating in Texas owe an annual franchise tax. The no-tax-due threshold for 2026 is $2.65 million in total revenue — businesses below this threshold owe no franchise tax and are not required to file any report (Texas eliminated the No Tax Due Report filing requirement starting with the 2024 report year).

Sales Tax: If you sell taxable goods or services in Texas, you are required to collect and remit Texas sales tax at 6.25% state rate plus up to 2% local.

Every deduction on this list requires documentation. The IRS can audit returns up to three years after filing. Keep receipts, bank statements, mileage logs, and home office records.

The easiest way to maintain good records is to run all business expenses through a dedicated business bank account and credit card, and use accounting software like QuickBooks Online to categorize everything as you go. See our LLC bookkeeping guide for more on setting up a clean system.

• LLC Bookkeeping: What Every Owner Needs to Know
• Bookkeeping for Independent Contractors
• Our Tax Preparation Services
• Budgeting Coach
• About The Gap ProAdvisors
• Contact Us

Get every deduction you are entitled to. At The Gap ProAdvisors, we prepare individual and business tax returns for self-employed Texans throughout the Abilene area. Contact us for a free consultation.