The Ultimate Tax Deduction Checklist for U.S. Sole Proprietors: Legally Lower Your Schedule C Taxable Income

The IRS doesn’t send a thank-you note for overpaying your taxes. For the US solopreneur, every missed deduction is a direct hit to your profit margin. We’ve distilled the complex US tax code into this actionable checklist to help your Single-Member LLC stay optimized, compliant, and profitable

1. The Golden Rule: Ordinary and Necessary

According to IRS Publication 535, for a business expense to be deductible, it must be both “ordinary” and “necessary.”

• Ordinary: An expense that is common and accepted in your trade or business.
• Necessary: An expense that is helpful and appropriate for your trade or business.
• How to distinguish: If you bought a high-end camera as a professional photographer, it’s ordinary and necessary. If you bought it as a consultant, it may be harder to justify.

At Counto, our team ensures every expense categorized by our AI meets these Section 162 criteria.

2. Maximizing the 20% Qualified Business Income (QBI) Deduction

Under the Tax Cuts and Jobs Act, most self-employed taxpayers are eligible to deduct up to 20% of their net business income from their taxes.

This is a “below-the-line” deduction, meaning it reduces your taxable income regardless of whether you take the standard deduction or itemize. Counto’s tax specialists handle the complex calculations required to ensure you maximize this 20% credit on your Form 1040.

✅ Book a 15-minute discovery call and see if Counto is the right partner for your business.

3. How to Deduct 100% of Self-Employed Health Insurance

As an independent business owner, you can likely deduct 100% of the health insurance premiums you pay for yourself, your spouse, and your dependents. Unlike other deductions, this is an “Adjustment to Income.”

It directly lowers your Adjusted Gross Income (AGI), which can qualify you for other tax breaks.

Note: This only applies if you were not eligible to participate in a subsidized health plan maintained by an employer (including your spouse’s employer).

4. Section 179: The “Big Equipment” Write-Off

Under IRS Section 179, a solopreneur can deduct the full cost of qualifying equipment (like a laptop, software, or office furniture) in the year it’s purchased, rather than depreciating it over 5 to 7 years.

For a successful Single-Member LLC, this is a powerful tool to reinvest profit and lower your current year’s tax liability.

5. The Home Office Deduction (IRS Topic No. 509)

If you use a portion of your home exclusively and regularly for business, you have two choices:

• The Simplified Method: A flat $5 per square foot (up to 300 sq. ft.) for a maximum deduction of $1,500.
• The Actual Expense Method: Deducting a percentage of your rent, mortgage interest, utilities, and insurance.

6. The “Audit-Proof” Way to Track Business Mileage

The IRS is strict about vehicle expenses (IRS Topic No. 510). To make your travel deductions audit-proof, you must keep a contemporaneous log. This means recording the date, mileage, and business purpose at the time of the trip.

• The Standard Rate: $0.67 per mile (2024).
• Travel Rule: You cannot deduct commuting from home to a regular workspace, but you can deduct travel to client meetings, the post office, or the airport for business trips.

7. Retirement Contributions (Solo 401k & SEP IRA)

Building wealth while lowering your tax bill is the ultimate win. Contributions to a SEP IRA or a Solo 401k are 100% tax-deductible. A Solo 401k is particularly valuable because it allows you to contribute as both the “employer” and the “employee,” maximizing your total deduction limit.

Why Records Matter (IRS Publication 583)

The IRS requires all sole proprietors to keep records that support the income and deductions claimed on their Schedule C.

The Counto Advantage:

We eliminate “shoebox stress.” By using our smart document management system (Counto Vault) and our integrated AI bookkeeping, your expenses are documented and categorized as they happen. When we file your taxes, every deduction is backed by digital proof, ensuring you are always Audit-Ready.

Stop leaving your deductions to chance

Knowing the rules is the first step; applying them correctly to your business is the next. Book a 15-minute discovery call with a Counto expert today to see how we integrate your books and optimize your taxes all year round.