One downside to being a W-2 employee is that you don’t have access to many tax write-offs. However, if you’re a 1099 contractor, the Internal Revenue Service (IRS) lets you deduct all ordinary and necessary business expenses on your tax return.

That language sounds a bit stiff, but it basically means that you can deduct the expenses someone in your line of business would reasonably need to pay. If you’re unsure what those might be, here are some great ideas to get you started.

Top 1099 tax write-offs
  1. Advertising expenses
  1. Auto expenses
  1. Business insurance premiums
  1. Contributions to retirement plans
  1. Health insurance premiums
  1. Home office expenses
  1. Interest on debts
  1. Meals
  1. Phone and internet bills
  1. Qualified business income deduction
  1. Self employment taxes

1. Advertising expenses

As a small business owner, you’ll need to find a way to generate interest in your product or services. Unless you have a vast network of pre-existing clients or customers, that means you’ll probably have to advertise your company somehow.

Fortunately, you can deduct those expenses, even if they take a variety of different forms. For example, you might write off the cost of your ads on social media platforms, direct mail campaigns, and business website.

2. Auto expenses

If you drive your car as part of your business, you might be able to deduct some of the expenses you incur for the vehicle. That typically includes things like gas, maintenance, registration fees, and auto insurance premiums.

That said, you can only deduct the portion of your auto expenses that corresponds with your business use. For example, if you have a car you use for business trips 25% of the time and personal trips 75% of the time, you can only deduct 25% of your car expenses.

Alternatively, you can use a standard mileage rate issued by the IRS to calculate your deduction, which involves multiplying your miles driven for business purposes by $0.56 in 2021 and $0.585 in 2022.

If you start with the standard method, you can switch to the actual expense method whenever you like. However, if you decide to use the actual expense method, you have to stand by that choice until you retire the car.

Note that driving to your primary place of work doesn’t count as business use of your car. However, if you typically work out of a home office and take a trip to a client site, that trip would count as business use.

3. Business insurance premiums

As a 1099 contractor, it’s often a good idea to purchase business insurance, though the type can vary depending on your trade. Fortunately, your premiums are tax-deductible, as long as it makes sense that you would need the policy.

For example, you’ll probably need general liability insurance if you work in construction. It helps cover the costs of a lawsuit if you ever accidentally damage your client's property and is often required by state regulation.

4. Contributions to retirement plans

As a 1099 contractor, you don’t benefit from employer-sponsored retirement plans, but that doesn’t mean you don’t have access to any retirement accounts. In fact, you have some great options that employees don’t.

For example, the Solo 401(k) is a fantastic retirement account for independent contractors with no employees. You can contribute the following amounts per year:

  • Employee portion: $19,500 for 2021 and $20,500 in 2022. Those over 50 years old can also make a $6,500 catch-up contribution.
  • Employer portion: 25% of your net self-employment income up to $38,500 in 2021 and $40,500 in 2022.

Contributing to retirement plans reduces your gross income for the current tax year directly. In addition, the dividends and capital gains you earn within the accounts are tax-deferred, which means you don’t pay tax on them until you withdraw your funds.

Because of the multiple tax advantages of retirement plans, contributing to them is one of the best deductions available to 1099 contractors. In any case, the funds will come back to you someday, and you can’t have too much money in retirement.

5. Health insurance premiums

In 2021, the average health insurance premium for single coverage was $7,739, which works out to about $644 per month. That’s a massive expense, and if you’re a 1099 contractor, you have to pay for it all without the help of an employer.

Fortunately, you can typically deduct the cost of your health insurance premiums, along with whatever you pay for dental insurance. If you have a spouse or a dependent, you can write off their premiums too.

However, there is one significant caveat. To take a business deduction for health insurance premiums, you can’t be eligible for coverage through a spouse’s employer.

6. Home office expenses 

If you run your business out of an office in your personal residence, you may be able to write off some of your housing expenses. That typically includes your rent, mortgage interest, property taxes, utilities, and maintenance.

To be eligible for the deduction, your home office needs to meet two criteria:

  • Primary place of work: In simple terms, you have to do most of your business from your home office. If you spend 51% or more of your time working in another location, you don’t meet this requirement.
  • Exclusive use: This rule stops you from taking the deduction if your home office doubles as personal space. For example, you can’t claim that your kitchen counter is a home office.

If you pass both tests, you can write off the housing expenses that correspond with the business use of your home. For example, if your home office is 100 square feet and you live in a 1,000 square feet home, you can write off 10% of your actual costs.

Alternatively, if you’d prefer not to track all your home expenses, you can use the simplified method, which involves multiplying the square footage of your home office by $5.

It’s generally best to calculate your deduction using both options to determine which will save you the most money.

7. Interest on debts

As a small business owner, you’ll likely take out a credit account at some point. Fortunately, you can write off the interest that accrues on all of your business debts, whether they’re installment or revolving accounts.

For example, say you’re a freelance photographer and use a credit card to pay for your day-to-day business expenses. If you ever carry a balance over from one month to the next, you can write off whatever interest you accrue as a result.

That's another reason why it’s best to keep your personal and business transactions on separate accounts. If you use the same credit account to pay for both, it can be hard to determine what portion of your interest is tax-deductible.

8. Meals

It might not seem like a meal could be an ordinary or necessary business expense, but it can be in certain situations. However, the rules for deducting them are pretty specific, and the IRS pays close attention since people may be tempted to cheat here.

Generally speaking, a meal must involve the discussion of business matters with a business contact to qualify for the deduction. For example, that might include:

  • Lunch with an existing client where you discuss ongoing issues
  • Dinner with a prospective client during which you attempt to close a deal
  • A meal with a vendor where you negotiate payment terms

If a meal is deductible, you have two options for calculating the size of the write-off. You can deduct 50% of the actual cost of the meal, as long as it’s not an extravagant amount, or you can use a flat allowance set by the General Services Administration.

Notably, in the 2021 and 2022 tax years, the IRS has temporarily lifted the 50% limit for meals that come from restaurants to help the industry recover from the effects of COVID-19.

9. Phone and internet bills

As a self-employed worker, you can take a tax deduction for whatever percentage of your phone and internet usage is for business purposes.

If you rent an office space with its own internet connection and pay for a second phone line just for your business communications, you can deduct the entire cost of both services.

However, if you have a home office or use your personal cell phone number for work, you can only deduct the business portion of the related expenses. Unfortunately, it can be particularly difficult to calculate that split for your phone and internet costs.

10. Qualified business income deduction

The qualified business income (QBI) deduction can significantly reduce your tax bill as a 1099 contractor. In simple terms, it lets you write off 20% of your business earnings, though that doesn’t include things like capital gains or interest on company investments.

To be eligible for the write-off, you must have pass-through income, which primarily excludes C-Corporations. In addition, there’s a maximum income restriction, and if you exceed it, the size of your deduction depends on the type of business you run.

As you can probably tell from that description, calculating the QBI deduction can be pretty laborious. There are a lot of nuanced rules to navigate, and it’s not a good idea to try and tackle them without the help of a tax expert.

For more details, you can read the IRS publication Instructions for IRS Form 8995.

11. Self-employment taxes

The self-employment tax deduction is one of the best ways to reduce independent contractor taxes because your eligibility doesn’t have anything to do with your line of work. As long as you’re self-employed, you can probably claim it to some degree.

The self-employment tax is a 15.3% tax comprised of two parts: a 12.4% Social Security tax and a 2.9% Medicare tax. It applies to 92.35% of your net earnings. Employees get to share that cost with their employers, with each party paying 7.65%.

However, self-employed taxpayers don’t have that luxury. The self-employment tax deduction lets you write off the employer portion for income tax purposes, easing the additional tax burden.

For example, say you report $50,000 of net earnings as a sole proprietor. You’d have to pay $7,065 in self-employment taxes. However, you could reduce your taxable income for state and federal income tax purposes by half that, which is $3,825.