What Expenses Can a 1099 Contractor Deduct on Their Taxes?

The basic test: ordinary and necessary

The IRS allows deductions for costs that are common in your trade and helpful for your business. Personal expenses are not deductible.

An expense is ordinary if it is common and accepted in your line of work. It is necessary if it is helpful and appropriate for the business, even if not strictly required. A photographer's camera lens qualifies. A new TV for the living room does not.

When an expense serves both business and personal use, only the business share counts, and you need to be able to support the split. Independent contractors typically report income and expenses on Schedule C. See the IRS guidance for the self-employed and the guide to tax write-offs for the self-employed.

Common deductible categories

Typical deductions include supplies, software, professional fees, insurance, advertising, education related to your work, and equipment.

For marketing questions, see what counts as a marketing expense. For larger purchases, read what depreciation is.

Vehicle, mileage and travel

You may deduct business use of a vehicle using either actual costs or the IRS standard mileage rate, with a record of business trips.

Driving between client sites, to pick up supplies or to a temporary work location is generally business use. Commuting from home to a regular workplace is not. If you work from a qualifying home office, trips from home to clients may differ, so ask your accountant.

Choose a method:

• Standard mileage rate. The IRS publishes a rate per business mile each year.
• Actual expenses. A share of gas, repairs, insurance and depreciation based on business use percentage.

Either way you need a log of dates, destinations, purpose and miles. Travel such as flights, lodging and a share of meals for business trips can also qualify; read what is considered a travel expense. Meals have special limits, so check current IRS rules.

Home office

A home office can be deductible if you use part of your home regularly and exclusively for business. There is a simplified method and a regular method.

The space must be used regularly and exclusively as your principal place of business, or for meeting clients. A desk in the corner of the bedroom that doubles as a guest area usually does not qualify.

The IRS offers a simplified option based on square footage, and a regular method that allocates a share of rent or mortgage interest, utilities, insurance and repairs. Which is better depends on your numbers. Keep photos, measurements and bills. Ask your accountant for the current rules and limits before claiming it.

Self-employment tax and health insurance

Part of self-employment tax and, in many cases, health insurance premiums can be deducted on your personal return. Retirement plan contributions can also reduce taxable income.

Some of the most valuable deductions are not business expenses listed on Schedule C. You may deduct half of your self-employment tax and, if you meet the conditions, premiums for health insurance you pay for yourself and your family. Contributions to retirement accounts designed for self-employed people, such as a SEP IRA or solo 401(k), may be deductible too, within annual limits.

Limits change every year, so check with your accountant or IRS.gov for current figures. If your income is uneven, read the 1099 lifestyle to plan for it.

What you cannot deduct

Personal expenses, fines and penalties, commuting, and expenses you cannot document are not deductible.

Common mistakes include:

• Everyday clothing, even if you wear it to work
• Personal meals and entertainment unrelated to business
• Fines, penalties and some political contributions
• Commuting costs
• Anything without a record or a clear business purpose
• The portion of any mixed-use item that is personal

Aggressive claims invite trouble if you are audited. A good rule is to deduct what you can explain in a sentence and prove with a receipt.

Records that protect your deductions

Keep receipts, invoices, bank statements, mileage logs and notes on business purpose. Separate accounts make this much easier.

Use a business bank account and a single card for business spending. Save receipts digitally the day you get them. Note who and why on meals and travel. Reconcile your books monthly. Our guides to tracking business expenses and expense categories show simple systems.

Clean records also help when you need financing. ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue, and a complete file is the application plus 3 months of business bank statements. If a large client pays in 60 days and you need cash for materials, working capital may bridge the gap. Applying takes minutes with a soft credit pull.