When you receive a 1099-MISC form for services you have provided to a company or someone else, you are not an employee -- you are self-employed independent contractor. This means you are responsible for your own business expenses; federal, Social Security and Medicare taxes; and all other costs related to your business. As an independent contractor, you have legitimate business expenses that you can write off against your taxes. Keep accurate receipts and records and meet with a tax accountant to ensure you take advantage of all the tax deductions you have and to ensure your tax forms are correct, as the IRS often changes the tax laws each year.
To deduct business expenses against your self-employed income, the IRS requires that these expenses be considered "necessary and ordinary." A necessary expense is "one that is helpful and appropriate" for your business, while an ordinary expense is one commonly accepted in your industry. For example, if you operate a website only for business purposes, the cost of the hosting fees, the domain name costs, any labor you pay for the site and even the monthly Internet fees can be written off. But if you personally use the Internet for watching movies or other activities, you must calculate how much of those costs are related to the business and how much are personal, as you cannot deduct personal expenses as business ones.
If you acquired a business loan that provided you startup costs for your business and used 100 percent of the money for your business, then 100 percent of the interest you paid is deductible. But if you used only 70 percent for the business and the other 30 percent to buy new furniture for your home, then only 70 percent of the interest expenses are deductible.
Business Assets and Office Supplies
Any time you buy a piece of equipment dedicated 100 percent to your business, you can write it off against your business using one of three methods: depreciation, amortization or depletion, generally requiring the help of a tax professional. Office supplies that you need to complete your work that generates your business income can be written off as business expenses. The same applies to cellphone expenses, as long as you write off only the portion that applies to your business.
Business Use of the Home
If you maintain a home business office, the IRS allows you to deduct a portion of your home expenses, including mortgage interest, insurance, utilities and repairs. Deduct a percentage of such expenses equal to the percentage of your home's total square feet that you use for business. A more complicated method requires you to calculate the actual costs of operating your home office. If your office space is 100 percent dedicated to the business, the whole space offers a tax write-off. But if you have a guest bed in your office or you use the office for personal online game play for example, you cannot deduct that use.
Mileage, Meals and Entertainment
Keep track of your business mileage by keeping a log that includes the dates, times, client visited and the mileage. You can use the standard mileage deduction rate, which the IRS changes each year, as a write-off. Or you can keep track of your actual car expenses, including maintenance costs, and write off the percentage dedicated to business. Parking and tolls are also deductible. If you are reimbursed for mileage by the company for which you provide services, however, you cannot deduct that. Business travel expenses and meals are write-offs, generally at 50 percent of the total, as long as you keep receipts and accurate records.
- IRS: Deducting Business Expenses
- IRS: Publication 535 (2013), Business Expenses -- Capital Expenses
- IRS: Home Office Deduction
- IRS: Travel, Entertainment, Gift, and Car Expenses
- Internal Revenue Service. "Tax Reform: What’s New for Your Business," Pages 3–4. Accessed Oct. 19, 2019.
- Internal Revenue Service. "Tax Reform Provisions that Affect Individuals." Accessed Oct. 19, 2019.
- Internal Revenue Service. "Tax Cuts and Jobs Act, Provision 11011 Section 199A - Qualified Business Income Deduction FAQs." Accessed Oct. 9, 2019.
- United States Congress. "H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018." Accessed Oct. 9, 2019.
- Social Security Administration. "If You Are Self-Employed," Page 1. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Topic No. 554 Self-Employment Tax." Accessed Oct. 9, 2019.
- Internal Revenue Service. "Publication 587 (2018), Business Use of Your Home." Accessed Oct. 9, 2019.
- Internal Revenue Service. "About Form 8829, Expenses for Business Use of Your Home." Accessed Oct. 9, 2019.
- Internal Revenue Service. "Publication 535 (2019), Business Expenses." Accessed March 16, 2020.
- Internal Revenue Service. "Travel, Gift, and Car Expenses," Page 5. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Tax Guide for Small Business," Page 40. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)," Page 2. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)," Page 18. Accessed Oct. 9, 2019.
As a native Californian, artist, journalist and published author, Laurie Brenner began writing professionally in 1975. She has written for newspapers, magazines, online publications and sites. Brenner graduated from San Diego's Coleman College.