If you got a 1099 this year, here are the 1099 deductions you can take to reduce your taxes.
There’s no such thing as a 1099 employee. If you receive a 1099 as an independent contractor, you can deduct your business expenses.
Employees who receive a W-2 are generally not eligible for business deductions.
IRS Form 1099-K can report several different types of income.
- Personal Payments: You’ll sometimes receive a 1099-K for personal payments through apps like PayPal or Zelle. These payments aren’t taxable, so there are no deductions to take.
- Hobby Payments: If you receive payments related to your hobby, you’ll owe hobby taxes. However, the current tax law doesn’t allow you to deduct hobby expenses.
- Business Payments: If you’re a business, including independent contractors and side gigs, you can deduct your ordinary and necessary business expenses.
MISC stands for miscellaneous, so the 1099-MISC deduction rules vary.
Some 1099-MISC payments are personal payments that usually don’t allow deductions. Other 1099-MISC payments are business payments that would allow business deductions.
If you receive a 1099-MISC for real estate commissions, you may be able to claim a number of deductions as a real estate agent.
NEC stands for nonemployee compensation. Form 1099-NEC is usually for independent contractors who are allowed to claim business deductions.
However, in some cases, you may receive a 1099-NEC related to your hobby activities. Receiving a 1099-NEC does not convert your business into a hobby if you’re following the hobby tax rules.
1099-SSA Attorney Fees
1099-SSA attorney fees are generally not deductible under the current tax law. The old rule was that you could deduct them if your Social Security benefits were taxable. (See the current IRS Publication 529).
20% Pass-Through Deduction
The 20% Pass-Through Deduction or Qualified Business Income Deduction is automatic for most 1099 contractors. Since corporations get a lower tax rate, the tax law lets most other small businesses pay taxes on only 80% of their profits.
See Car Expenses and Mileage. Auto repairs can be included in your deductible expenses when you use your car in your business.
When you use a vehicle in your business, you can generally deduct things like gas, insurance, maintenance, repairs, and depreciation.
You can either use the standard mileage deduction or actual expenses method.
A dedicated business phone is generally 100% deductible.
If you use a personal phone in your business, you can:
- Include your phone bill as part of your home office deduction
- Calculate the percent of the time you use your phone for business and deduct that percent of your phone bill.
Computers are usually deductible through depreciation. With depreciation, you generally divide the cost of the computer over five years rather than claiming it all at once.
If you use the computer for both business and personal activities, you get a prorated deduction based on the percentage of time you use the computer for business.
If you use the computer at least 50% of the time for business and have a qualifying small business, you may be able to use the IRS Section 179 depreciation rule. Section 179 allows you to deduct the entire cost at once instead of using depreciation.
If you pay another contractor to help you in your business, those payments are generally deductible. Don’t forget to issue your contractors 1099s by the deadline.
If you hire employees in your small business, employee wages and related costs are generally deductible as compensation expenses.
Equipment purchases from your business are generally deductible.
If you make large purchases, you may need to deduct the purchase through depreciation over several years rather than deducting the entire expense in the year of the purchase. However, some small businesses may be able to take a one-time deduction instead of using depreciation under IRS Section 179.
While there’s no strict dollar amount for depreciation, you usually don’t have to worry about it unless the cost of your equipment (single item or combined) is in the thousands of dollars.
Gas for business trips is generally deductible. See Car Expenses and Mileage.
If you’re a 1099 contractor and don’t have access to an employer health insurance plan, you may be eligible for the self-employed health insurance deduction. This is a separate, personal tax deduction that doesn’t go on your Schedule C.
Home Office Deduction
If you work from home, you may be able to claim the home office deduction if you have an office area that’s 1) your principal place of business and 2) exclusively used for business.
You can usually either deduct $5 per square foot (up to 300 square feet or $1,500) or calculate your actual expenses. If you use your actual expenses, you can deduct a portion of things like utility bills according to what percentage of your home your office takes up.
Home repairs and home improvements typically fall under the home office deduction. Some expenses that are only for your work area may be 100% deductible.
Certain major renovations can also reduce your personal capital gains taxes when you sell your home.
Home internet lines generally fall under the home office deduction. Dedicated business internet lines are generally deductible on their own.
Itemized deductions are generally only for personal expenses. You don’t report business expenses as itemized deductions.
Business expenses usually go on your Schedule C or business tax return.
You generally can’t deduct the cost of land that you buy for business.
The value of unimproved land also typically can’t be deducted as depreciation. Only buildings and other improvements can typically be depreciated.
When you sell land, you can usually deduct what you paid for the land from the selling price to determine your capital gain or loss.
Lease payments for an office, business property, or business equipment are generally deductible.
Car lease payments can also be deductible, but they fall under your car expenses.
If you work from a rental home, you may be eligible for the home office deduction.
Having an LLC doesn’t change your tax deductions.
If you have a business, you can deduct your business expenses as usual. You don’t need an LLC to claim business expenses.
If you have an LLC to protect your personal assets, you generally can’t deduct your LLC’s expenses.
Meal deductions are generally for when you’re having a business meeting with clients or making overnight trips away from home. Personal meals during your regular work day are generally not deductible.
Mileage is generally deductible when you drive between business locations.
Commuting miles are generally not deductible. Commuting generally includes driving between your home and the first and last business stop of your day.
To deduct mileage, you can either use the standard mileage deduction or claim your actual car expenses.
Office supplies like pens, paper, printer ink, and other items you use for your business are generally deductible. Any supplies you take for personal reasons are generally not deductible.
Ordinary and Necessary Expenses
The official IRS rule is that you can deduct ordinary and necessary business expenses. Don’t read too much into these terms.
If something legitimately helps you run your business, it’s generally deductible. If you’re trying to use your business as an excuse to write things off, it’s generally not deductible.
Parking expenses for business trips are generally deductible. Parking expenses for your regular commute are not.
For example, if you rent an office and have to pay to park your personal car in a garage, that’s typically not deductible. If you have to pay to park when visiting a client, that’s usually deductible.
Product Review Products
The IRS takes a close look at deductions for products that you review.
What you definitely can’t do is buy something you want for yourself, do a product review, and call it a business expense.
If it’s a product you don’t keep, you can usually deduct the purchase price but may have to claim the selling price as income if you sell the item.
If you review a product, actually make money off of the review, and then keep the item for personal use, you may be able to take a partial deduction.
If you pay self-employment taxes, you’ll usually get an automatic deduction for one-half of your self-employment taxes as an above-the-line, personal deduction. This adjustment covers the employer’s share of your Social Security tax and Medicare tax.
The standard deduction isn’t relevant to 1099 deductions. The standard deduction only applies to personal deductions.
You can still claim business deductions even if you use the standard deduction.
Tools are generally deductible as long as you exclusively use them for work. For example, you can’t deduct a camera if you use it for business one time and then turn it into your personal camera.
You may be able to claim a partial deduction for tools you use for both business and personal reasons.
Truck Driver Deductions
Truck drivers have a number of possible deductions including mileage, tolls, and other expenses while working. See Truck Driver Taxes.
If you use a truck in your business, you can generally deduct gas, maintenance, insurance, repairs, depreciation, and other expenses just like you can with cars.
Certain large, generally non-consumer trucks may not be eligible for the standard mileage deduction.
Uber Rides would normally follow the same rule as car expenses. You can’t deduct your commute, but you can deduct using an Uber for other business trips.
You may be able to deduct a portion of your home utilities under the home office deduction. Utilities at a business location are generally always deductible.
Work clothes are generally only deductible if it’s a special item of clothing that you can only use for work.
If you have regular clothing that you could wear during your personal time but choose not to, it’s generally not deductible.