Expenses like car, travel, fixed-asset depreciation, office expenses, and supplies that are related to your independent contractor business are deducted on Form 1040 Schedule C. If you have a home office that you use exclusively for business, you can deduct the appropriate portion of your total housing expense on Form 8829. (If your office occupies one-eighth of your house, for example, you could deduct one-eighth of your housing expense.)

Employee business expenses, combined with any other miscellaneous itemized deductions, must exceed two percent of your Adjusted Gross Income to be deductible. Most employees do not qualify for a home office deduction because their employer provides them work space. However, unreimbursed travel, supplies, and other expenses are deductible on Form 2106. Employment-related expenses carry over from this form to the Form 1040 Schedule A as a miscellaneous itemized deduction. If your total miscellaneous itemized deductions -- including tax preparation fees, investment advice, etc. -- exceed two percent of your Adjusted Gross Income, you get to deduct the excess.

Since employee business expenses must exceed two percent of your Adjusted Gross Income to be deductible, it's better to have expenses related to your self-employment income.

For more information, see IRS Publication 334: Tax Guide for Small Business; IRS Publication 463: Travel, Entertainment, Gift and Car Expenses; IRS Publication 535: Business Expenses; and IRS Publication 587: Business Use of Your Home.