When tax season comes around, it can invoke both a smile on the face and sweat to the brow. While being a part of the gig economy comes with a host of great benefits, it can be confusing to understand business taxes and the process of calculating your 1099 write-offs as an independent contractor.
Individuals working on gig apps such as Uber, Lyft, or Grubhub, earn income as independent contractors – also classified as self-employed individuals. If you are an independent contractor in the United States, then you will need to familiarize yourself with the 1099 tax form, which is also why many gig workers go by the term ‘1099 worker’.
Understanding what qualifies as 1099 write-offs will help you keep more of your hard-earned money as you get into the habit of tracking and managing your expenses year-round.
As an independent contractor, you are responsible for your own business expenses including car payments, gas, repairs, and even phone bills. All of this comes out of your own pocket but can be used as independent contractor write-offs to help reduce the amount of taxes you owe each year.
Before addressing how to write off 1099 taxes, we need to address the major question – What can I write off as an independent contractor? Not only do you have to think about your day-to-day work expenses that allow you to perform your gig, but also other expenses you may have overlooked. We’ll break it down for you!
Here’s one of the best tax write-offs for Uber drivers! Since you’re always on the road, your mileage is probably your largest ongoing expense aside from car payments. Lucky for you, mileage is an easy write-off as long as you keep track of the portion related to your gig.
There are two ways in which mileage can be tax write-offs for 1099 contractors.
The first method is to start adding up all of your car-related expenses, such as insurance, interest on car payments, gas, repairs, and maintenance, then dividing it by the percentage of your business usage. To measure this, you will need to divide the miles you drive solely for business by the total miles driven that year. This percentage becomes your allowable deduction – if 80 percent of your mileage is for business, then you can only write off 80 percent of all car-related expenses.
The other option is called the Standard Mileage Deduction, which is adjusted annually by the IRS based on every mile you drive. The standard 2021 rate is 56 cents per mile.
Either method you choose will require you to keep track of how many miles you drive as part of your job. Any personal mileage cannot be accounted for, so you will need to keep good track of how many miles are actually from working as an independent contractor. We recommend using an app like MileIQ to help take the guesswork out!
Aside from the cost of putting gas into your vehicle, there is so much more to owning a car for gig work. There are actual car expenses that are great tax write-off when driving for uber, such as car payments, car repairs, and maintenance. This also includes business-related parking fees and tolls!
If you don’t own your car outright, you can also deduct any interest on car payments. Simply use the same framework for calculating your allowable deductions on car-related expenses and apply it to any interest you pay on your car.
However, it’s important to note that you can only claim these car expenses separately if you decide to do the Standard Mileage Deduction since they aren’t yet considered. If you’ve already claimed these expenses along with your mileage, then you cannot claim them again.
A business necessity and another great write-off for any 1099 contractor is your home internet and phone bill. This is especially if you’re constantly using your phone to complete your rideshare rides and delivery gigs on the go, or if you use your home internet regularly for online freelance work.
As with your mileage and car expenses, you must claim the estimated percentage of time it’s used for work. So if 40 percent of your time on the phone is spent exclusively for your independent work, then you can legitimately deduct 40 percent of your phone bill. The same rule applies to your home internet.
If you work as a gig worker on an online platform such as UpWork or a marketplace like Etsy, then you can use advertising to promote your business. Any money spent on advertising qualifies as 1099 write-offs because they’re business expenses to help you and your business grow professionally. This includes Google or Facebook ads, your website, or any print materials like business cards or flyers.
While personal meals are not eligible, business-related meals do qualify as a deductible. This includes traveling for business, joining a business meeting, or entertaining a client. As an independent contractor, you can deduct 50 percent of food and drinks that qualify, but you will need to document the date and location of the meal, the business relationship of the person or people you dined with, and the total cost of the meal.
You may also deduct any educational expense that is related to improving or maintaining skills for your existing business. This is a great way for you to upskill in the gig economy to find additional work or potentially increase your earnings!
While you can’t write off your Saturday morning yoga classes, you can write off those related to your professional expertise. This includes:
So if you’re a freelance photographer taking a design masterclass, then you’re good to go!
These are just some of the most useful tax write-offs for independent contractors, such as Uber drivers or those contracting from home, but definitely not all. Understanding what can be used as a 1099 tax write-off will help you better track your expenses consistently, thus simplifying your tax filing process because all your expenses, receipts, and files will be ready to go. If you’re on the lookout for great expense-tracking apps, take a look at our highly recommended apps for self-employed workers!
Remember, don’t be afraid to invest in your business if it can help you increase your productivity and income as an independent contractor. To help manage your business expenses, you can join Moves to get financial peace of mind and access to money when you need it. You can also sign up for our newsletter to stay on top of the latest content!
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