If you work as an independent contractor, the IRS treats you as a business of one. No one withholds tax from your pay, so you handle your own income tax and self-employment tax. The good news is that you can also deduct business expenses. Here are ten 1099 tax deductions every contractor should know.
Today, most contractors receive Form 1099-NEC for their work, while Form 1099-MISC covers items like rent and royalties. Either way, you report business income and expenses on Schedule C.
Top ten 1099 tax deductions
1. Car expenses and mileage
For many contractors, driving is the biggest write-off. You can deduct miles driven between jobs, to meet clients or for business trips. However, commuting from home to a regular workplace doesn’t count.
You can use either the standard mileage rate or your actual costs. The standard rate covers gas, insurance, maintenance and depreciation, so it is simpler. The IRS sets the rate each year. If you use it, you can’t also deduct gas or insurance. Also, keep a log of the date, miles and business purpose for each trip, since the IRS often reviews this deduction.
2. Home office
If you run your business from home, you may deduct part of your home costs. The space must be used regularly and exclusively for business. Also, it generally must be your main place of business.
You can use the simplified method, which allows $5 per square foot for up to 300 square feet. Alternatively, use the regular method and figure actual costs on Form 8829.
3. Supplies and equipment
You can deduct supplies you buy for your work. For example, a cleaner can deduct cleaning supplies, and a courier can deduct delivery bags. Likewise, equipment you rent or buy for the business may be deductible.
4. Health insurance premiums
If you pay for your own health insurance, you may deduct the premiums. However, you can’t claim the deduction for any month you could join an employer plan, including through your spouse. You take this deduction on Form 1040, not Schedule C, and it can’t exceed your business profit.
5. Continuing education
Courses that maintain or improve skills for your current work are deductible. On the other hand, education that qualifies you for a new line of work is not.
6. Cell phone and internet
If you use your phone or internet for both work and personal use, deduct the business share. So estimate a reasonable business percentage and keep notes on how you figured it.
7. Business travel
When you travel away from home for business, you can deduct airfare, lodging, rideshares and rental cars. In addition, you can generally deduct 50% of business meals while traveling.
8. Parking and tolls
Business parking and tolls are deductible, even if you use the standard mileage rate. So keep those receipts.
9. Postage and shipping
Postage is easy to overlook. Still, if you mail or ship items for your business, those costs add up.
10. Fees, dues and subscriptions
Professional dues, license fees, software and business subscriptions are deductible. For example, a certification you must renew for your work counts.
Keep good records for your 1099 tax deductions
Above all, keep detailed records of every expense you plan to deduct. Also, remember to make quarterly estimated tax payments to avoid penalties. For the official rules, see the IRS Schedule C instructions.
Get help with your 1099 taxes
We help contractors find every deduction and plan their estimated payments. To learn more, call (415) 842-2940 or book a free 15-minute call.