Last Updated: August 19, 2026
Three common tax mistakes self-employed individuals make and how they can put legitimate business deductions at risk.
Every tax season, many self-employed individuals discover that claiming business deductions isn’t as straightforward as they expected.
After receiving a Form 1099-NEC, questions often arise:
- Can I deduct this expense?
- What if I don’t have the receipt anymore?
- Can I estimate my expenses?
- What if I’m not sure whether an expense is deductible?
These questions usually don’t arise because taxpayers are trying to do anything wrong. More often, they simply aren’t familiar with the IRS recordkeeping requirements that apply to self-employed individuals.
Receiving a Form 1099-NEC gives self-employed individuals an important tax benefit: the opportunity to deduct ordinary and necessary business expenses related to their trade or business. However, that opportunity also comes with additional responsibilities.
Unlike employees who receive a Form W-2, self-employed individuals are generally responsible for maintaining records that support the income and deductions reported on their tax returns. According to the IRS’s guidance on burden of proof, taxpayers are responsible for substantiating the items reported on their returns if requested.
Understanding these responsibilities can help protect legitimate deductions while reducing unnecessary tax problems in the future.
Mistake #1: Claiming Expenses Without Supporting Documentation
One of the most common misconceptions is that if a business expense was actually paid, it can automatically be deducted.
Whether an expense is deductible depends on the facts and circumstances, including whether it qualifies as an ordinary and necessary business expense and whether it can be supported by appropriate records.
Invoices, receipts, bank statements, credit card statements, canceled checks, electronic payment confirmations, and other business records all help demonstrate that an expense was actually paid and was related to the business.
A missing receipt does not automatically mean a deduction will be denied. Depending on the circumstances, taxpayers may still be able to substantiate an expense using other reliable documentation. Those recordkeeping methods are discussed in more detail in the related article, “The Smartest Tax Deduction Starts with Good Records”.
However, claiming deductions based solely on memory – or simply estimating expenses without a reasonable factual basis – can create unnecessary risk if the IRS later requests supporting documentation.
Before asking “Can I claim this expense?”, consider asking: “Can I support this expense if I’m asked to?”
That simple shift in thinking can help protect legitimate deductions and reduce problems later.
Mistake #2: Waiting Until Tax Season to Organize Business Records
For many self-employed individuals, recordkeeping doesn’t become a priority until a Form 1099-NEC arrives.
By then, several months may have passed. Receipts may have faded or been lost. Cash purchases become difficult to remember. Invoices may no longer be available. Business expenses that seemed obvious at the time become much harder to verify.
Trying to reconstruct an entire year’s worth of expenses from memory is rarely as accurate as recording them when they occur.
The IRS recommends maintaining records throughout the year – not waiting until tax season. Proper recordkeeping helps prepare an accurate tax return, monitor business performance, and support deductions if additional documentation is requested.
Mistake #3: Not Understanding Which Expenses Are Actually Deductible
Another common source of confusion is determining which expenses qualify as business deductions.
The IRS generally allows deductions for ordinary and necessary expenses paid or incurred in carrying on a trade or business. As a result, self-employed individuals often ask questions such as:
- Can I deduct supplies?
- Can I deduct mileage?
- Is training or continuing education deductible?
- What if I use something for both business and personal purposes?
- What if the business owner already provides the supplies I use?
The answer depends on the specific facts and circumstances.
Simply receiving a Form 1099-NEC does not automatically make every work-related purchase deductible.
Generally, business expenses should:
- be ordinary and necessary for the taxpayer’s trade or business;
- be paid or incurred by the taxpayer; and
- be supported by appropriate records.
For example, if a salon purchases and provides products for technicians to use, those costs are generally the salon’s business expenses – not the technician’s. Likewise, if an expense is reimbursed by another party, it generally cannot be deducted again by the taxpayer.
On the other hand, a self-employed individual who personally pays for qualifying training or continuing education that maintains or improves the skills required in their current trade or business may be able to deduct those costs, provided the expense otherwise meets the requirements under the tax law and is properly documented.
When in doubt, it’s always better to ask questions before filing a tax return than to assume an expense is deductible.
Tax Administration Is Becoming Increasingly Data-Driven
Every tax return should be prepared with the expectation that the income and deductions reported can be be supported by appropriate documentation.
According to the IRS Data Book, the IRS closed 497,621 tax return audits during Fiscal Year 2025, resulting in approximately $26.8 billion in recommended additional tax.
At the same time, the IRS continues to expand its use of data analytics and artificial intelligence to support tax administration, strengthen compliance efforts, and improve the identification of returns that may warrant additional review. According to the U.S. Government Accountability Office (GAO), these technologies help the IRS analyze large volumes of tax data more efficiently. However, examination decisions continue to be made by IRS personnel.
This is not intended to discourage taxpayers from claiming legitimate business deductions. Instead, it reinforces an important principle: every deduction reported on a tax return should be supported by records that explain and substantiate the expense.
If the IRS Requests Documentation
Every tax return should be prepared with the expectation that the information reported can be supported if questions ever arise.
If the IRS requests documentation, taxpayers may be asked to explain not only how much was spent, but also what was purchased, when it was purchased, why it was a business expense, and how the amount claimed was determined.
If certain deductions cannot be substantiated, they may be reduced or disallowed. Depending on the circumstances, this could result in additional tax, interest, and applicable penalties.
It’s also important to remember that although many taxpayers hire a tax professional to prepare their return, the taxpayer remains responsible for the accuracy of the information reported. Before signing a return, taxpayers should carefully review it to ensure the information is complete and accurate. The IRS also encourages taxpayers to choose a qualified tax professional and review their return before signing.
Good Recordkeeping Protects Legitimate Deductions
Good recordkeeping isn’t about paying more tax or less tax. It’s about reporting the correct tax based on accurate income and legitimate, well-supported business deductions.
There is no standard amount of deductible expenses that applies to every business. Two taxpayers with similar income may have very different legitimate business expenses depending on the nature of their work and how they operate their businesses.
What matters is not whether your deductions look similar to someone else’s.
What matters is whether they are legitimate and can be supported.
Every invoice tells part of your business story.
Every receipt helps support a legitimate deduction.
Every business expense recorded throughout the year contributes to a stronger and more accurate tax return.
Good documentation helps protect the deductions you’ve legally earned through your business activities.
How The Wisebook Can Help
Whether you’re a nail technician, hairstylist, contractor, or another self-employed professional, understanding your tax responsibilities is just as important as understanding your trade.
The Wisebook helps self-employed individuals with tax preparation, bookkeeping, payroll, and business formation. By maintaining organized records throughout the year and understanding which expenses are deductible, you can prepare a more accurate tax return, support legitimate deductions, and reduce unnecessary stress during tax season.
