Don’t Miss Out on These Top Seven 1099-NEC Deductions

Understanding your self-employment tax responsibilities

Don’t be taken by surprise: It’s important to remember that income taxes are not taken out automatically. There’s no free tax ride – if you make money, the IRS will know. You should pay self-employment taxes through estimated taxes, calculated on the net income from your business. You should make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. However, if you are self-employed or otherwise part of the sharing economy, you need to estimate your taxes even when you expect to owe less than $1,000. Estimated tax payments are made on a quarterly schedule established by the IRS. Beware: There are penalties and fees associated with “underpayment of estimated taxes” (read: not paying enough taxes during the year!) at both the federal and state levels.

What to know about reporting income and forms

While you may not necessarily think of yourself as a “business owner,” the IRS does. (Congratulations!) If you’ve earned $600 or more from a single vendor, expect to receive a Form 1099-NEC, Nonemployee Compensation. You can expect a Form 1099-K if you receive more than $20,000 from more than 200 payments through a third-party payment-collection system, such as PayPal or Venmo. Remember, if you made money, it’s generally taxable – whether you get a 1099 or not. This income must be reported, period. And if you don’t report your income, you’re not only missing tax obligations, but also opportunities. There’s a variety of tax deductions that can be taken advantage of for your self-employment income.

Top self-employment tax deductions

Self-employed individuals are allowed to deduct a wide range of regular business expenses from their taxable income:

1. Cell phone

If you use a cell phone as part of your business, this could be a big deduction for you. But be careful not to make the mistake of mixing business with pleasure; you will need to keep detailed records, such as a contemporaneous log book or establish a completely separate business line.

2. Home office

If you dedicate part of your home to business purposes, you can deduct the portion of your household expenses that relate to your business operations. A home office will qualify as the principal place of business if you use it exclusively and regularly to conduct administrative or management activities of your trade or business, and if there is no other fixed location of the business where you can conduct these activities.

3. Travel

You can deduct travel expenses, and 50 percent of related meals, if the travel is reasonably related to your business.

4. Car expenses / standard mileage deduction

You can write off either the actual expenses for business-related driving – like gas, oil, tolls, and repairs – or take a standard mileage rate deduction. The exact amount of the standard mileage rate is determined annually.

5. Fees, dues, and subscriptions

Annual fees, subscriptions to trade publications, and things like union dues are common costs of doing business and are deductible.

6. Supplies

You can claim other office-related expenses, including software, stationery, photocopies, and any other consumables needed to run your business. Don't forget to claim your actual business expenses, such as the supplies needed to do each of your jobs, licensing fees, or continuing education.

7. Health insurance premiums

If you’re self-employed and not eligible for an employer-sponsored health plan through your job or a spouse’s job, you may be eligible to write off your health insurance premiums on your taxes.

File with a Tax Pro to maximize your refund

Tax rules can be complicated! Before you can use a deduction or credit, you must qualify for it. Don’t roll the dice and make a mistake on your biggest paycheck of the year. A Tax Pro can assist in finding deductions and credits for your specific tax situation, and can provide much needed advice regarding any tax issues.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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