Top 10 deductions (+13 more you probably didn’t know about)
As an independent contractor, taxes can seem overwhelming. Instead of an employer or company withdrawing taxes for you from every paycheck, you need to keep track of what you owe and make sure the IRS gets their due. Sounds complicated, but it doesn’t have to be. When it comes to 1099 taxes, knowledge is power.
Every year contractors leave thousands on the table by not maximizing deductions. Saving money at tax time depends on tracking deductions all year-round. Every mile you drive for work and every expense, even if it seems small, can add up to thousands of dollars that stay in your pocket in April.
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As you track these expenses, make sure you keep proof in the form of receipts, bank statements, mileage logs (or a tracking app like Stride Tax). When you file in April, you’ll total these expenses per category and list them on your Schedule C (Stride Tax does this math for you). If you use software like H&R Block, the software will prompt you for the expense category totals and input them into the Schedule C for you.
Here are the top 1099 tax deductions and some additional ones that you may have not known about!
Top 1099 Tax Deductions
One of the largest expenses available to contractors to deduct is mileage. Contractors have two options when it comes to this deduction:
Their actual car expenses, like the cost of gas, maintenance, insurance, car payments, and depreciation, or
A standard amount for every mile they drive.
Option 2 is called the standard mileage deduction, and it usually saves drivers more money at tax time than itemizing all car expenses. As it turns out, the standard mileage rate is pretty generous unless you drive a gas guzzler. The 2017 standard mileage rate is 53.5 cents per mile, and the 2018 rate is 54.5 cents per mile.
2. Health Insurance Premiums & Medical Costs (Deducted on your Form 1040)
You have a lot of options when it comes to deducting insurance and medical expenses. There is a way for the same person to deduct medical expenses and insurance payments, plus get a subsidy for their insurance payments, all in the same year! However, it’s important to understand the difference between these three kinds of tax opportunities. This article goes into more detail about how to deduct health costs: How to deduct health and medical expenses
3. Home office deduction (Line 30)
If you work at home, identify the percentage of your home you use for your business. This can be done by estimating the square footage of your office as a percentage of your home’s overall square footage. Multiply that percentage by your rent, mortgage, and utility bills to calculate the amount you can deduct from your income. You can also do the simplified method: $5 for every square foot or home office space.
4. Supplies (Line 22)
If you buy cleaning supplies, hot bags to keep food warm, doggie bags for dog walking, or any tools for your self-employed business, all of these supplies are deductible. If it's something you use for both work and personal reasons, you'll need to keep track of how much the supply is used for each in some way. Make sure you keep track of these expenses— they can add up to a lot at tax time.
5. Travel (Line 24a)
Have to travel to another city for work? Those travel costs like lodging, airfare, rental cars, and local transportation are deductible. Be careful to not deduct any personal expenses here like meals with friends while traveling. Meals while traveling should be grouped with the Meals category we describe next. One caveat for this deduction: your travel must be “overnight, away from your residence, and be primarily for business.”
6. Car expenses (Line 9)
In lieu of taking the mileage deduction, you can deduct the business portion of your “actual car expenses” like big repairs, leasing payments for a car (primarily used for work), registration, maintenance, and car washes. This also includes parking fees and tolls. Sorry though, you can’t deduct parking tickets.
7. Cell phone costs (Part V)
Do you use your cell phone or home phone for business as well as your own personal use? If yes, then you can count that portion of your cell phone bill used for business as a tax write off. Determine what percentage of your plan costs are for business and for personal use then deduct the business portion. Be sure to have evidence to substantiate the business use of your phone (Uber trips and hours spent using data, phone records of business calls, apps used exclusively for business and how much data used by those apps, etc.)
Tip: To save yourself some time, you can find your phone usage from a typical week or month of work, and apply that average to the entire year!
8. Business insurance (Line 15)
Have you purchased insurance for your self-employed business? This includes fire, theft, flood, malpractice, errors & omissions, general liability, and workers compensation. These insurance costs are all deductible. Heads up: this deduction category does not include auto insurance and shouldn’t include ANY personal insurance.
9. Commission and fees (Line 10)
For on-demand workers like Uber, you can deduct the fees Uber takes as a business expense (learn more here). Make sure to not pay taxes on their commission— that’s paying taxes on money that never hit your bank account!
If you’re a real estate broker or sales professional you can deduct commissions or fees paid to non-employees to generate revenue (also known as “agent fees”).
10. Depreciation of assets, Section 179 (Line 13)
Do you have computers, tools, furniture, cars, or office equipment that is worn down from your business use? You can deduct the depreciation of your business assets. Heads up: taking this deduction requires you to fill out IRS Form 4562 (one for each business).
Read more about electing the 179 deduction
Other 1099 deductions you may not know about
1. Advertising (Line 8)
Did you create any marketing assets or materials for your self-employed business? Like flyers, signs, Facebook ads, promotions, events, or attend trade shows. Those costs are all deductible as well as the costs of creating and distributing those (like using a PR firm or contract designers).
2. Office expenses (Line 18)
Do you have an office for your self-employed work (that’s not your home office)? Your office expenses are deductible! That includes any office cleaning services or building maintenance. Watch out, make sure you don’t deduct home office expenses, rent or utilities in this category— those all have their own category for deductions (home office, rent, and utilities are all categories unto themselves).
3. Repairs and Maintenance (Line 21)
Did you pay for any machine repairs or maintenance costs for tools you used for work? Or did you pay to repaint your office or fix a broken computer? Costs like these can be deducted as repairs or maintenance. Be careful not to deduct car expenses here or really significant improvements (which would go under “Depreciation or Section 179”).
Tip: If you make an improvement to a business asset, then you’ll deduct it a bit differently! Any improvements that increase the value of an asset need to be recorded over several years on your taxes.
4. Taxes and Licenses (Line 23)
Do you pay for any business licenses or certifications related to your work? This includes small business license, LLC or incorporation fees, or special accreditations to maintain. Be careful to not deduct your self-employment or income tax here.
5. Rent or lease (vehicles, equipment, property) (Line 20a)
Do you rent an office space or lease a car or any equipment for your business? Guess what—those expenses are deductible.
6. Utilities (Line 25)
If you have an office space then you can deduct utilities like power, water, garbage, and internet. You can’t, however, deduct utilities for a home office using this category — those go along with your “home office” deduction.
7. Contract labor (Line 11)
Did you hire a web developer to create a website for your self-employed business or hire any other contractors to help your business? Payments you made to them are tax deductible. This category is only for contractors, so expenses like lawyer fees or employee wages would go elsewhere!
8. Employee wages (Line 26)
If you have employees, you can deduct their wages, commissions and bonuses — simple as that. Employment taxes can be deducted as well (on Line 23 - Taxes and Licenses)!
9. Employee benefits programs (Line 14)
Do you have employees and provide them health insurance, liability, education assistance, or other benefits? Costs to provide those benefits are tax deductible. But be sure to deduct your own health insurance and medical costs on your individual 1040 form.
10. Interest (mortgage) (Line 16a)
Do you have a mortgage on any property used for your business (and not for personal use or your primary home)? You can write off the interest you pay for that mortgage using a Form 1098 that the lender may send you to report interest you’ve paid throughout the year.
11. Interest (car, other) (Line 16b)
Guess what? You can also deduct any interest on business credit cards, business lines of credit, or interest on car payments. But make sure you only deduct the portion of interest that’s related to your business — no deducting personal interest payments!
Tip: Looking for an easy way to determine your “business usage” of your car? Find the business portion of your miles! If you drove 50,000 miles last year, and know that 25,000 of them were for work, then your business usage of your car is 50%.
12. Legal and professional services (Line 17)
Any fees you’ve paid for legal services, tax preparation or payment to other licensed professionals you can deduct!
Tip: Be sure to only deduct the portion attributed to your business! For example, if you pay an extra fee in order to have your Schedule C prepared, you could deduct that fee.
13. Contributions to Employee Pension or Retirement plans (Line 19)
If you make contributions you make to your employees’ retirement plans (e.g. 401(k), Keogh plans, profit sharing plans), then these contributions are tax deductible. Make sure to deduct contributions to your own retirement on form 1040 Line 28).
For more detail on what expenses require and allow, please check out the IRS guidelines for the Schedule C Form. The best bet is to find a tax preparer who specializes in self-employment tax to help you maximize all of these deductions and keep as much of your earnings as possible.
Disclaimer: The information contained in this Guide is not offered as legal or tax advice. The U.S. federal income tax discussion included in this Guide is for general information purposes only and is not a complete analysis or discussion of all potential tax consequences that may be relevant to a particular individual. In light of the foregoing, each individual should consult with and seek advice from such individual’s own tax advisor with respect to the tax consequences discussed herein. Any information contained in this Guide is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the U.S. Internal Revenue Code of 1986, as amended.