What You Can Deduct as a 1099 Contractor

The basic rule: you deduct what you spend to earn the income

As a 1099 contractor, you report your income on Schedule C (Form 1040), and you can subtract business expenses from that income before calculating what you owe in taxes. The IRS calls this your net profit. The key is that an expense must be both ordinary (common in your line of work) and necessary (helpful to doing the job). You cannot deduct personal expenses, even if you use them sometimes for work.

The difference between a contractor and an employee matters here. An employee gets a W-2, and their employer withholds taxes. An employee cannot deduct most work expenses on their personal tax return. A contractor gets a 1099, pays their own taxes, and can deduct business expenses. This is one of the real financial differences between the two arrangements.

You keep records of what you spend — receipts, invoices, credit card statements — and report the total on Schedule C. The IRS does not require you to attach receipts to your return, but you must keep them for at least three years in case of an audit.

Key Takeaways

• You can deduct any ordinary and necessary expense you incur to earn your 1099 income, from supplies to a home office to vehicle mileage.
• Personal expenses — groceries, car insurance, phone bills for personal use — are not deductible, even if you sometimes use them for work.
• A home office deduction requires a dedicated space used regularly and exclusively for work; you can use a simplified method or calculate actual expenses.
• Vehicle and mileage deductions depend on whether you use the standard mileage rate or track actual expenses; commuting to a regular workplace does not count.
• You must keep receipts and records for three years, and the expense must be reasonable in amount and directly tied to earning your 1099 income.

Office supplies, equipment, and software

Supplies you buy specifically for your business are deductible. This includes pens, paper, printer ink, notebooks, folders, and postage. If you buy a desk, chair, or filing cabinet for your office, you can deduct it. Software subscriptions you use to do your work — accounting software, design tools, project management platforms, video conferencing — are deductible in the year you pay for them.

Equipment with a longer life — a computer, camera, or machinery — may need to be depreciated over several years rather than deducted all at once. The IRS has rules about how long different items last. A laptop might depreciate over five years; a vehicle over five years; a building over 27.5 years. You can also choose to deduct certain equipment in full in the year you buy it under Section 179, but there are dollar limits and rules about what qualifies. A tax professional can help you decide which method saves you more.

Do not deduct office supplies you use for personal reasons. If you buy a printer and use it half for work and half for personal printing, you can deduct half the cost. Keep the receipt and note how you split the use.

Home office deduction

You can deduct a home office only if you have a dedicated space used regularly and exclusively for work. This means a room or part of a room — a desk in a bedroom you also sleep in does not may have access to. A spare bedroom you use as an office does. A corner of your kitchen does not.

You have two ways to calculate the deduction. The simplified method lets you deduct $5 per square foot of dedicated office space, up to 300 square feet (so a maximum of $1,500 per year). You measure the space, multiply by $5, and report it on Schedule C. No receipts needed. The actual expense method requires you to calculate what percentage of your home's total square footage the office is, then deduct that same percentage of your rent or mortgage interest, utilities, insurance, repairs, and depreciation. If your office is 200 square feet and your home is 2,000 square feet, you deduct 10 percent of those expenses. This method takes more record-keeping but often yields a larger deduction if your home expenses are high.

You cannot deduct both methods in the same year. Choose the one that gives you the larger deduction. If you use the actual expense method and later sell your home, you may owe capital gains tax on the depreciation you claimed, so discuss this with a tax professional before you start.

Vehicle and mileage expenses

If you drive for work, you can deduct either the actual cost of operating the vehicle or the standard mileage rate, which the IRS sets each year. For 2024, the rate is 67 cents per mile for business use (this changes annually). You track the miles you drive for work, multiply by the rate, and deduct the total. Keep a log or use a mileage app.

The actual expense method means you deduct a percentage of your car payment or depreciation, insurance, gas, maintenance, and repairs — the same percentage as your business miles are of your total miles driven. If you drove 10,000 business miles and 5,000 personal miles (15,000 total), you deduct two-thirds of your car expenses. This method requires detailed records and receipts for all expenses.

Commuting to a regular workplace does not count as business mileage, even if you work for yourself. Driving from home to a client's office counts. Driving from one client to another counts. Driving from home to a co-working space counts. Driving from home to your own office space (if you rent one) counts. But driving from home to a job site where you work every day is considered commuting and does not may have access to.

Professional services and contractor fees

If you hire other contractors or professionals to help you do your work, their fees are deductible. This includes accountants, lawyers, bookkeepers, designers, photographers, or other specialists you pay to complete work for your clients or manage your business. If you pay a contractor more than $600 in a year, you will receive a 1099-NEC from them, and they will send a copy to the IRS, so keep records.

Subcontractor fees are deductible. If you are a general contractor and hire an electrician to do part of a job, that electrician's invoice is a business expense. If you are a consultant and hire another consultant to help on a project, that cost is deductible.

Do not confuse professional services with personal services. A lawyer's fee for a business contract is deductible. A lawyer's fee for a personal injury case is not. An accountant's fee for business tax preparation is deductible. An accountant's fee for personal tax preparation is not (though you can deduct the business portion if they prepare both).

Health insurance, retirement contributions, and half of self-employment tax

As a 1099 contractor, you pay both the employee and employer portions of Social Security and Medicare tax — this is called self-employment tax. You can deduct half of what you pay as a business expense on Schedule C. The other half is deducted separately on Form 1040. This is a real deduction that lowers your taxable income.

Health insurance premiums you pay for yourself, your spouse, and your dependents are deductible as a business expense if you are self-employed and have no other health coverage available through an employer. You cannot deduct premiums if you are may be able to access for coverage through a spouse's job. Report this deduction on Form 1040, not Schedule C, but it still lowers your taxable income.

Contributions to a SEP-IRA or Solo 401(k) are deductible. These are retirement accounts designed for self-employed people. You can contribute a percentage of your net self-employment income (up to annual limits set by the IRS). A tax professional can help you set up the right account and calculate how much you can contribute.

Travel, meals, and entertainment

Travel expenses for business trips are deductible. If you fly to meet a client, the airfare, hotel, and ground transportation are deductible. Meals during a business trip are deductible, but only 50 percent of the cost (this is a long-standing IRS rule). If you stay overnight for business, the hotel is 100 percent deductible.

Meals and entertainment have stricter rules now. As of 2018, most meal and entertainment expenses are 50 percent deductible, and some entertainment expenses (like tickets to a sporting event) are not deductible at all unless they are directly tied to a business discussion. A meal with a client to discuss a project is deductible at 50 percent. A meal alone at your desk is not. Keep receipts and note who you met with and what you discussed.

Commuting meals do not count. Lunch while you work from home is not deductible. Breakfast before you drive to a client's office is not deductible. But a meal during a business trip or a meal with a client or colleague to discuss work is.

Frequently Asked Questions

Can I deduct my internet and phone bill?

Only the business portion. If you have a dedicated business phone line, the entire bill is deductible. If you use a personal phone for both work and personal calls, you can deduct the percentage you use for work — for example, 50 percent if you estimate half your use is business. Keep a note of how you calculated the split. Internet is trickier; if you use it only for work, it is fully deductible, but if you use it for personal browsing too, you can deduct a reasonable business percentage.

What if I work from home but do not have a dedicated office?

You cannot use the home office deduction. However, you can still deduct other business expenses like supplies, software, vehicle mileage, and professional services. The home office deduction specifically requires a dedicated space used exclusively for work.

Can I deduct my education or training?

Yes, if it maintains or improves skills you use in your current business. A web designer taking a course on a new design tool can deduct it. A plumber taking a certification course can deduct it. But education that prepares you for a new career or profession is not deductible. Keep receipts for tuition, books, and course materials.

Do I have to deduct everything I spend on my business?

No. You can choose to deduct an expense or not. However, if you deduct a large expense one year and not the next, the IRS may ask why. It is usually better to deduct what you legitimately spent than to leave money on the table, but a tax professional can advise you on your specific situation.

What happens if I deduct something the IRS does not allow?

If you are audited and the IRS disallows an expense, you will owe the tax you should have paid plus interest. If the disallowance is large or the IRS thinks it was intentional, you may also owe a penalty. Keep good records and receipts so you can explain your deductions if asked. When in doubt, consult a tax professional.