As an independent contractor in the tech industry, you may pay higher taxes than if you were earning an equivalent amount while working for someone else. That’s why it’s important that you understand the tax deductions you qualify for to decrease your overall tax liability. It is a crucial element of learning how to calculate taxes for 1099. Here are some of the most common tax deductions for a tech 1099 contractor.
1. Home Office
If you use part or all of your home as an office or other facility for running your business, you can deduct a portion of your rent, utilities, mortgage, property taxes, repairs, and other costs.
The simplified option allows you to deduct $5 per square foot of area used regularly or exclusively for the business. This has a ceiling of 300 square feet. Alternatively, you could use the percentage method. Here, if the business takes up approximately 5 percent of your home’s square footage, you may deduct 5 percent of your home expenses.
2. Additional Office Space
Not every tech 1099 contractor works from home. Even for those who do, there may be a need for additional working space outside the confines of the home.
So if you have a mortgage or pay rent for office space away from your home, you can deduct this cost. Additional office space may include workshops, storage units, and other facilities.
3. Insurance
You may deduct self-employment premiums on the health insurance cover you have taken up for you and your family. However, that is only permitted if you are not eligible for coverage through another plan.
In addition, you must demonstrate a net profit for your business. The deduction does not apply to self-employment tax though. You may obtain other insurance deductions through business insurance, auto insurance, or a portion of your home.
4. Business Meals and Travel
If you must travel to meet current or potential customers, or if you must do so for any other business-related reason, you may deduct some of these expenses. Usually, business travel costs will include transport, accommodation, meals, tolls, and parking fees.
Meals are computed at 50 percent. Automobile costs may be calculated using the standard rate of $0.58 per mile. Your other option is to calculate actual auto expenses and depreciation then multiply this by the percentage that can be attributed to business activities.
5. Office Equipment and Supplies
You can deduct the office equipment you use for your tech business by calculating the depreciation of items such as computers, scanners, and printers. Office supplies like ink toner, paper, and shipping envelopes are deductible expenses too.
6. Advertising
You cannot run a stable, successful tech business if you do not set aside money for advertising and promotion. Some of these advertising costs may be deducted.
Examples of advertising expenses that could qualify include website creation, digital advertising, promotional flyers and brochures, business cards, and billboards.
7. Professional Associations and Subscriptions
As a tech 1099 contractor, you usually do not have the benefit of a recognized brand backing you when you pitch for new business. But you do have an important alternative – membership in a professional association. Clients are bound to give you a listening ear when they know you are a member of an established professional body.
Importantly, there are benefits on the tax front as well since the membership dues you pay may be deducted as a business cost. The same applies to the subscription fees you pay for industry publications and journals.
Make Deductions Work for You
For a tech 1099 contractor, handling your tax matters can feel overwhelming. Instead of an employer withdrawing taxes from your paycheck, it is up to you to keep track of the taxes you owe and make sure these are remitted accordingly.
Luckily though, there are so many tools and resources available that can help. The Taxcaster tool from TurboTax is a great option. Beyond that, you can always hire a tax specialist to help you handle your taxes.