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Tax Deductions for 1099 Independent Contractors

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September 2, 2020
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Being a 1099 independent contractor means that you are running a one-person business. Unlike full-time employees whose taxes are automatically deducted from salaries, you need to deduct them from your income.

The good news is that you can claim deductions on several things that are considered to be business operating costs.

Disclaimer: This article is not to be considered tax advice. Always consult a tax advisor before taking any action.

Home office tax deduction

Independent contractors often work from their homes. As this is considered a place of business, you could write off a portion of your mortgage, rent, or property taxes. 

To qualify for home office deduction, you need to meet two requirements:

  1. The home office place must be a dedicated room you use exclusively for work.
  2. The home office is the main place of business. If you are having physical meetings with clients, this room is used for it.

How to calculate your home office tax deductions?

You can calculate the home office deduction by determining the percentage it takes out of your home's total area. You will need this information when filing the IRS' 8820 form.

Example: Your home's total area is 1,500 square feet, and your work area is 150 square feet. This means that you are entitled to deduct 10% of home expenses. The tax deduction applies to electricity bills and some repairs on the home office as well.

You can also deduct indirect home-related allowable expenditures such as mortgage interest, real estate taxes, security system, and homeowner's land insurance. 

Home office tax deductions for spaces under 300 square feet

If your home office space is under 300 square feet, you can use the IRS's simplified calculation. Rather than detailing all expenses, you can claim a standard deduction of $5 per square foot of the home office space. The maximum tax deduction is $1,500 per year.

Cell phone tax deduction

You probably use your phone a lot as an independent contractor. If you use one cell phone for both personal and business use, you can deduct a portion of your monthly bill. The calculation is similar to the home office- Calculate the percentage of use dedicated solely for business purposes and claim it when filing a 1099 form.

Equipment depreciation tax deduction

Any business owner needs to purchase specific equipment required to perform work. Over time, this equipment's value depreciates.

Example: if you bought a laptop two years ago, its value now is lower than when you bought it.

According to the IRS, if you are using a piece of equipment for more than a year, the value depreciation can be written off on your tax return. 

Car expenses tax deduction

Car expenses, mileage, tolls, and parking expenses are tax-deductible. On the other hand, purchasing a car is not tax-deductible.

The IRS has a standard mileage rate of $0.57 per mile. Always keep all the receipts and add them when filing you 1099. The rules and rates change often, so make sure you stay up to date.

Health insurance tax deduction

As an independent contractor, your health insurance is tax-deductible. The deduction includes dental care and health insurance for your spouse, dependents, and children under 27. Moreover, your qualified long-term care insurance premiums can also be deductible.

To calculate your deduction and learn more, take a look at the IRS Publication 535.

Travel Expense tax deduction

You can deduct your business expenses as long as the travel is exclusively business-related. Make sure to keep all the receipts and records of transportation, lodging, and meal costs during your business trips.

Educational expenses tax deduction

Any independent contractor understands the benefits of continuing development, as it often leads to increased workload. The good news is that all the webinars, business books, and professional publication subscriptions can be tax-deductible.

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