The IRS greets freelancers and other 1099 recipients with a wealth of business deductions, primarily in the form of Schedule C. This article provides an alert, exploring Tax deductions for a 1099 employee/freelancer likely to escape detection by 1099 recipients.
● Operational Expenses
You maintain a website to promote your business, yielding a deduction. Your broadband service, fueling your business research, merits deduction at a percentage mirroring cost attributable to business rather than personal matters.
Business supplies include much more than printer ink and paper, all enjoying equal deductibility status. Writing tools (e.g. pens and their refills, notebooks, memo pads), desk mats, pencil cups, and most items typically found on the shelves of office supply stores enjoy deductible status to the extent your use of the product reflects a business purpose.
● Car Expenses
A vehicle used for business provides a basis for deducting gas, repair, maintenance, and associated costs. An alternative method involves a straight mileage deduction, using the year's per-mile monetary figure provided by the IRS. Car insurance and registration fees spark deductions as well. The tax code also provides a depreciation deduction, empowering the freelancer to recapture the acquisition price under certain circumstances.
● Deductions Flowing from a Home Office
✧︎︎︎ Utilities and Maintenance Costs
A home office used to generate income, by definition, exists within a residential structure—whether owned or rented. Maintaining the home triggers predictable fees: mortgage/rent, electricity, sewage, hiring someone to mow the lawn or shovel snow paths, extermination services, etc. Calculating the percentage of the home regularly and exclusively used for a business purpose yields the percentage of the allowable tax deduction for a 1099 employee/freelancer. Example: where a home office consumes 25% of the home, 25% of all costs and fees attributable to maintaining the home itself forms the permissible home office deduction.
✧︎︎︎ Home Office Decorations and Furniture
A fan, plant, poster, coffee mug warmer, picture, chair, and similar—situated in a home office—personify allowable business deductions.
Driving from your home to a client's location, business-related conference, or relevant continuing education facility establishes commuting miles, outside the legal parameters for a business deduction. However, when you maintain a home office and travel from that business location to another, you satisfy a premier requisite for deductible business mileage.
● Health Insurance Premiums
Tax deductions for a 1099 employee/freelancer include health insurance premiums, as explained in an alert issued by the IRS.
● Continuing Education
A writer attending a conference focused on improving writing skills—e.g. how to submit queries, tracking submissions, "show not tell"—accumulates multiple expenses. These include the cost of the course(s), hotel, meals, tolls, parking, and textbooks purchased at the site. Because the conference reflects work-based concerns, the expenses transform into allowable deductions.
● Cell Phone
Calling and texting clients and business entities pertinent to your work requires a phone. Some 1099 recipients maintain two phones, reflecting business and personal use respectively. The fees flowing from a cell phone used exclusively for business yields an approved basis for business deductions. If the phone witnesses mixed use, the standard rule governs: the percentage of use attributable to your business reflects the percentage allowed for deduction purposes.
● Research Databases
When your business task requires research, which in turn necessitates using a paid database, a business deduction embraces those fees.
● Postage and Shipping
Purchasing a computer or other device online, for use in generating income, activates a deduction covering the cost and attending shipping/ handling fees. Because the deduction follows business usage, if the item is also used for personal reasons, the percentage of use attributable to business activity serves as the allowable deduction percentage. And, your shipped business packages instigate deductions.
● Fees, Dues, and Subscriptions
You may deduct single purchases of, and ongoing subscription fees related to, magazines relevant to your business. Likewise, license fees and business organization dues qualify as permissible deductions.
● Software and SaaS (Software as a Service)
The software powering your device as you work constitutes a deductible expense. Cloud services pertinent to your work receive the same treatment.
Find out more about deductible expenses generated by your business activities by contacting Foster Financial CPA today. One of our experienced tax professionals will enlighten you to the nuances involved in "business usage," expenses attributable to your "home office," and other essential concepts underlying the host of deductions available to freelancers and other 1099 recipients. Professional assistance ensures intelligent tax compliance, yielding substantial savings.