Freelancers, self-employed individuals, and contractors are all revving up to complete their 1099s this April. For a self-employed individual or someone new to taking out their taxes, this season is a stressful time. Making sure you set aside enough money and had your bases covered throughout the year is stressful for someone who might’ve just had a W-2 to file previously. You’re now not only working for yourself and managing your own business but also handling the tax responsibilities that were previously handled for you.
Because of this stress, self-employed individuals have a strong tendency to miss out on numerous deduction opportunities. What are the top deductions for contractors to make use of? What are some easy deductions to make on your 1099? Find out now.
Home Office Deduction
If you work from home, this is the one for you. The Home Office Deduction allows you to deduct part of your rent or mortgage, utilities, repair costs, and so forth. This deduction applies to the part of your home you use “exclusively and regularly” for business activities. To make use of this, you need to first calculate the square footage of the portion of your home that you use for your business. Use this figure to determine the percentage of your home that is used for your business. So say you rent a 1,000 sqft home and 200 sqft of that goes to your business, you would be eligible to deduct 20% of your housing expenses. Keep in mind you’ll only be able to deduct expenses directly related to the business portion of your home. So if a light fixture needs to be replaced in your child’s bedroom, that’s not getting deducted. The IRS provides further detail on the guidelines around Home Office Deductions in this PDF.
One of a contractor’s highest expenses is often their car. Driving to meet clients, pick up materials, and deliver products all puts wear and tear on your car. Not to mention the gas it costs to get there. But by keeping highly accurate records, you can deduct the costs for business-related drives.
There are two methods for you to go about deducting car expenses. First, you can track your mileage. Keep a log of every trip in your car you take for business purposes. At the end of the year, total that up and multiply it by the IRS’ standard mileage rate. That’s 58.5 cents per mile at the time of writing, but it can vary from year to year.
The alternative option is to deduct your “actual car expenses” and requires quite a bit more record-keeping. You’ll need to calculate the percentage of business-related driving you did. You then total up the cost of operating your car overall (gas, insurance, repairs, etc.) and take that percentage out of your total. That’s the amount you can deduct. No matter what, keeping clear and accurate records of each business-related trip, the purpose, distance, and date is crucial.
An often overlooked business-related expense is subscriptions. If you work from home and manage your own business there’s a good chance you’re paying for some software on a monthly basis. Or maybe you’re subscribed to the local newspaper, an industry magazine, or other publication related to your work. These are subscriptions that help you do your job, and they can be deducted in your 1099.
Expert Tax Preparation for 1099
While these are all excellent ideas, they still can be tough to put into practice on your own. Self-employed individuals already have a business to manage, and managing your business’s finances on top of that is an entirely separate job. Looking for expert assistance? Chris Haro and his team have prepared & filed literally thousands of tax returns over their 20+ years of experience. Reach out today for a personal consultation.