1. Home office costs
Depending on your profession, you may have significant home office expenses. For example, maybe you use your home as an office, a yoga studio, a place to store expensive equipment or something else altogether.
Do you use your home office space only for work, and is it your primary place of business? If so, there are multiple options for calculating your independent contractor tax deductions in this category.
There are direct expenses to consider, like renovations and a paint job, and indirect expenses, like insurance, utilities, and home repairs. Homeowners can also write off portions of their property taxes and mortgage interest.
So, how much can you write off for a home office? The most straightforward calculation with the IRS is $5 per square foot up to 300 square feet, which would be a maximum write-off of $1,500.
Don’t forget to write off office supplies as part of your home office deductions. These include computers, printers, work-related software, pens, paper, postage, shipping and more. You can deduct these as long as you used them for business purposes the year you purchased them.
2. Educational expenses
Continuing education can be an important factor in growing a business and attracting new clients.
Educational expenses are potentially tax-deductible. For instance, webinars, virtual conferences, business-related books and subscriptions to professional publications are all eligible as potential deductibles when you file your taxes.
3. Business insurance premiums
Business insurance for the self-employed provides important coverage to protect you from unexpected expenses related to accidents or business mistakes. For example, a professional liability policy can help cover expenses if a client accuses you of missing a deadline or making a mistake that costs them money.
According to the IRS, you can deduct business insurance if it’s “ordinary” and “normal” for your business and industry. These aren’t just insurance types that are legally required, either. Here are some examples of types of business insurance that you can deduct from your tax return:
- General liability insurance: This can help protect your business if you are legally responsible for bodily injuries or property damage.
- Professional liability insurance: Also known as errors and omissions insurance, this type protects you from professional accusations of negligence from business errors.
- Commercial property insurance protects your store or office space from damage caused by fire, theft, and other perils. It also includes inventory and equipment.
- Business income or business interruption insurance: This covers you if your business operations are interrupted by a natural disaster.
- Commercial auto insurance: Getting separate insurance for a commercial vehicle is tax deductible, but you can only claim commercial auto or gas mileage as a deduction. (So you may want to do the math.)
- Self-employed health insurance: You can claim self-employed health insurance on your tax deductions for yourself and your family.
These deductions will vary based on your industry. For example, a personal trainer may have professional liability insurance to cover injury-related damages. In many states, there is no legal requirement to have this policy, but the IRS still considers it ordinary and normal to have this insurance in the fitness industry.
You can include your expenses for business insurance coverage in your 1099 tax deductions.
Get a quick estimate on how much business insurance could cost your business with NEXT’s insurance calculators:
4. Depreciation of property and equipment
As an independent contractor, you likely purchased property and equipment for your business. Over time, those items lose value. For example, a printer you bought three years ago is worth less now than when you bought it. That’s called depreciation.
According to the IRS, if business purchases will last you more than a year, you can write off the depreciation of their value on your tax return. You can potentially deduct repairs on property used for your business as well.
5. Car expenses
If you spend time going from job to job, making deliveries or other business tasks, sometimes your vehicle can feel like your office. Luckily, car expenses and mileage can be one of the largest tax write-offs for entrepreneurs.
The IRS standard mileage rate for tax deductions is typically near 65.5 cents per mile in 2023. The rules for calculating the rate are updated every tax year, so it’s good to stay current.
Tolls and parking expenses are also deductible. For extended meetings or projects, these can add up to a significant out-of-pocket expense for an independent contractor. Keep your receipts, and add them to your 1099.
At this point, you might be asking, “Can I write off my car payment?” Unfortunately, the answer from the IRS is no.
If you are purchasing a car exclusively for business use, you can potentially deduct some expenses. Just be prepared for extra IRS scrutiny since 1099 workers rarely have a business-only vehicle.
6. Business travel
Do you have client meetings out of state or attend industry conferences? When it comes to business trips, your airfare, hotel costs, taxis (including rideshare services like Uber) and 50% of your meal costs can be written off as business expenses.
Even if you extend your trip to travel after the business commitments have ended, you can include those travel expenses. Just make sure that the number of leisure days on the trip doesn’t exceed the total business days.
For example, if you fly from California to Paris for a three-day photography conference, you may want to extend your trip for two days of touring. 50% of the costs of meals and accommodations for the extra two days can be deducted, just like the first three days.
7. Cell phone and internet bills
Do you have a cell phone or an internet connection that you use for both personal use and business? If so, you can write off a portion of your monthly internet and cell phone bill. Similar to your home office, you’ll want to determine what percentage of your phone and online usage is business vs. personal. You can then deduct that percentage of your bills at tax time.
8. Health insurance and medical expenses
100% of your health insurance is one of the many deductible business expenses for independent contractors to include on your 1099. You can deduct medical, dental and vision premiums.
In addition to health insurance premiums, you can write off expenses such as glasses, nonprescription medications and visits to the chiropractor. There may be benefits for your spouse as well.
9. Retirement savings
If you contribute to an individual retirement account (IRA), you may be able to make a tax deduction on those contributions. There are some caveats though.
First, you may need to reduce or eliminate the deduction if you or your spouse contributes to an employee-sponsored retirement plan such as a 401(k) or 403(b).
You also can’t take the deduction if your Modified Adjusted Gross Income (MAGI) exceeds yearly limits.
10. Bank fees and business interest
If you got a loan from a bank to fund your business, you may deduct the interest as a business expense. If your loan was used for both business and personal expenses, you need to track how much of it went to your business and only deduct the interest from that portion.
You can also deduct business-related banking fees and charges. For example, paying for replacement checks, monthly service charges, and lost card fees. These charges add up as many traditional banking institutions often nickel and dime you.
Similarly, you may write-off the interest from a business credit card, and any associated costs like annual fees. By the way, you don’t need to have a business credit card to deduct qualifying interest. If you have a personal card used exclusively for business expenses, you can still deduct.
11. Startup costs
If you got your business up and running this year, you can claim deductions for many of the associated expenses — up to $5,000. These related expenses include, registering for a website domain, travel for scouting business locations, market research, and training staff.
If you set up an LLC or corporation for your business, you can deduct an additional $5,000.
However, buying equipment or vehicles aren’t considered startup costs. You can deduct them in a few years as they depreciate in value.
12. Advertising fees
Spending money to advertise your business can mean more write-offs. Expenses include both digital and physical advertising costs.
From business cards to flyers. Facebook or LinkedIn ads. A billboard, a TV commercial, or radio spot. Website design and maintenance. They all qualify as advertising expenses.
13. Consulting and professional service fees
When you’re a business owner, you may need extra help from people who specialize in different areas.
For example, you may need to consult with a lawyer to get a legal question answered. You may ask an accountant for help in managing your books or a financial advisor to help you define long term goals.
Whatever the case, if the fees are a necessary expense related to operating your business, write them off.
14. Self employment taxes
When filling out your tax form as a self-employed worker, self-employment taxes can be something of a shock. That’s because you’re paying both the employer and employee sides of Social Security tax and Medicare taxes—that’s a tax rate of 15.3% of net earnings.
The IRS knows this isn’t fair, so they allow you to deduct half of your self-employment tax.
While it won’t reduce the actual amount of self-employment tax you need to pay, it can reduce your income tax. (Self-employment tax and income tax aren’t the same thing.)
15. The qualified business income (QBI) deduction
Good news: The qualified business income deduction (QBI) allows eligible self-employed people to deduct a portion of their business income.
QBI allows people with “pass-through income” — business income reported on personal tax returns — to deduct up to 20% of their business income.
There are limitations though. To qualify for the deduction, as of 2020, your total taxable income must be below $163,300 for individuals and $326,600 for married couples filing jointly.
16. Tax advice service expenses
There are many benefits to being a self-employed contractor, and a qualified tax advisor can help you optimize your strategy when filing your 1099 independent contractor income tax deductions.
While hiring a tax advisor may seem like an unnecessary cost, the tax preparation they provide may save you valuable time. Preparers can help you with your itemized deductions, figure out your actual expenses, and ensure you’re claiming all the available tax breaks you can.
Even better — you can write off their fees as a business expense.
Tax deductions vs. tax credits
There’s a difference between tax deductions and tax credits.
- Tax deductions. A tax deduction lowers how much of your income is taxable. How much a tax deduction saves you depends on your federal income tax bracket.
- Tax credits: A tax credit directly decreases the amount of tax you owe. It gives you a dollar-for-dollar reduction of the income tax you owe.
Both will reduce your tax bill, but the tax credit is slightly better due to the dollar-for-dollar reduction.
