- 1 Can 1099 Employees Deduct Car Expenses on a Tax Return?
- 2 1099 business deductions
- 3 1099 business deductions
- 4 IRS Tax Form 1099-MISC – Instructions for Small Businesses & Contractors
Can 1099 Employees Deduct Car Expenses on a Tax Return?
By Internal Revenue Service definition, an independent contractor is an individual who does not work under the direct control of an employer. These workers set their own hours, use their own equipment or inventory and are not required to work on their clients' property. Many couriers and delivery workers, for example, work as independent contractors. Each year, their income is reported on a 1099 form instead of a W-2, and they have the right to deduct their business expenses, including those involving a vehicle.
An independent contractor receives a 1099 form detailing earnings from his client. This amount is reported to the IRS by the payer, just as employers issue W-2s to regular employees and send a copy to the government. There's no tax withholding for 1099 workers for income tax or the payroll taxes that go to fund Social Security and Medicare. They report income on Schedule C and also must file Schedule SE to figure self-employment tax, which replaces the payroll taxes paid by and on behalf of regular employees.
The general IRS rule of thumb is that any expense related to the production of income is deductible. Therefore, if a 1099 independent contractor needs a car to do his job, he can deduct car expenses, including gas, tolls, repairs, insurance, lease costs and parking charges. In addition, if he is required to carry advertising on the car, such as a decal or wrap, those expenses are deductible as well. If he uses a car for work as well as for personal transportation, the IRS requires him to keep track of the percentage used for work. Driving 60 percent of the time for business, for example, means he can only deduct 60 percent of the actual expenses.
Independent contractors can deduct actual vehicle expenses or take a standard mileage rate. As of the publication date, the latter method allows them to multiply 56 cents by the number of miles driven for business purposes and deduct that amount for vehicle expenses. Tolls and parking expenses are deductible even when the standard rate is used, and the rate can increase or decrease in a new tax year. The standard mileage rate is not allowed, however, if you're operating a fleet of more than five vehicles.
An independent contractor uses Schedule C to report income and expenses related to her business. Vehicle expenses go on Line 9 and are combined with all other deductible expenses on Line 28. The IRS also wants an account of when the vehicle was placed in service, the number of miles driven for business and personal use, whether or not the family has another vehicle available and whether or not the expenses are documented. Although drivers don't have to file receipts and repair invoices, they should keep them safe if they're claiming actual expenses.
1099 business deductions
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Mar 23 Top 10 1099 write offs (+13 more you probably didn’t know about)
As an independent contractor, taxes can seem overwhelming. Instead of an employer or company withdrawing taxes for you from every paycheck, you need to keep track of what you owe and make sure the IRS gets their due. Sounds complicated, but it doesn’t have to be. When it comes to 1099 taxes, knowledge is power.
Every year contractors leave thousands on the table by not maximizing deductions. Saving money at tax time depends on tracking deductions all year-round. Every mile you drive for work and every expense, even if it seems small, can add up to thousands of dollars that stay in your pocket in April.
We created Stride Drive to help contractors never miss a deduction and make tracking as simple as possible. Go ahead and download it today to make sure you maximize these write offs!
As you track these expenses, make sure you keep proof in the form of receipts, bank statements, mileage logs (or a tracking app like Stride Drive). When you file in April, you’ll total these expenses per category and list them on your Schedule C (Stride Drive does this math for you). If you use software like H&R Block or TurboTax, the software will prompt you for the expense category totals and input them into the Schedule C for you.
Here are the top 1099 tax deductions and some additional ones that you may have not known about!
One of the largest expenses available to contractors to deduct is mileage. And contractors have two options when it comes to this deduction. Contractorshave the option of deducting either:
- Their actual car expenses, like the cost of gas, maintenance, insurance, car payments, and depreciation, or
- A standard amount for every mile they drive.
Option 2 is called the standard mileage deduction, and it usually saves drivers more money at tax time than itemizing all car expenses—As it turns out, the standard mileage rate is pretty generous unless you drive a gas guzzler. The 2017 Standard Mileage Rate is 53.5 cents per mile. Read more about the standard mileage rate.
#2 Health Insurance Premiums & Medical Costs (Deducted on your Form 1040)
You have a lot of options when it comes to deducting insurance and medical expenses. There is a way for the same person to deduct medical expenses and insurance payments, plus get a subsidy for their insurance payments, all in the same year! However, it’s important to understand the difference between these three kinds of tax opportunities. This article goes into more detail about how to deduct health costs: How to deduct health and medical expenses
#3 Home office deduction (Line 30)
If you work at home, identify the percentage of your home you use for your business. This can be done by estimating the square footage of your office as a percentage of your home’s overall square footage. Multiply that percentage by your rent, mortgage, and utility bills to calculate the amount you can deduct from your income. You can also do the simplified method: $5 for every square foot or home office space.
If you buy cleaning supplies, hot bags to keep food warm, doggie bags for dog walking, or any tools for your self-employed business, all of these supplies are deductible. If it's something you use for both work and personal reasons, you'll need to keep track of how much the supply is used for each in some way. Make sure you keep track of these expenses — they can add up to a lot at tax time.
Have to travel to another city for work? Those travel costs like lodging, airfare, rental cars, and local transportation are deductible. But be careful to not deduct any personal expenses here like meals with friends while traveling. And meals while travelling should be grouped with the Meals category we describe next. One caveat for this deduction: your travel must be “overnight, away from your residence, and be primarily for business.”
In lieu of taking the mileage deduction, you can deduct the business portion of your “actual car expenses” like big repairs, leasing payments for a car (primarily used for work), registration, maintenance, and car washes. This also includes parking fees and tolls. Sorry though, you can’t deduct parking tickets.
Do you use your cell phone or home phone for business as well as your own personal use? If yes then you can count that portion of your cell phone bill used for business as a tax write off. Determine what percentage of your plan costs are for business and for personal use then deduct the business portion. Be sure to have evidence to substantiate the business use of your phone (Uber trips and hours spent using data, phone records of business calls, apps used exclusively for business and how much data used by those apps, etc.)
Tip: To save yourself some time, you can find your phone usage from a typical week or month of work, and apply that average to the entire year!
#8 Business insurance (Line 15)
Have you purchased insurance for your self-employed business? This includes fire, theft, flood, malpractice, errors & omissions, general liability, and workers compensation. These insurance costs are all deductible. Heads up: this deduction category does not include auto insurance and shouldn’t include ANY personal insurance.
#9 Commission and fees (Line 10)
For on-demand workers like Uber Drivers, you deduct the fees Uber takes as a business expense (learn more here). Make sure to not pay taxes on their commission - that’s paying taxes on money that never hit your bank account! (Learn more about how to deduct Uber’s commission).
If you’re a real estate broker or sales professional you can deduct commissions or fees paid to non-employees to generate revenue (also known as “agent fees”).
#10 Depreciation of assets, Section 179 (Line 13)
Do you have computers, tools, furniture, cars, or office equipment that is worn down from your business use? You can deduct the depreciation of your business assets. Heads up: taking this deduction requires you to fill out IRS Form 4562 (one for each business).
Did you create any marketing assets or materials for your self-employed business? Like flyers, signs, Facebook ads, promotions, events, or attend trade shows. Those costs are all deductible as well as the costs of creating and distributing those (like using a PR firm or contract designers).
Do you have an office for your self-employed work (that’s not your home office)? Your office expenses are deductible! That includes any office cleaning services or building maintenance. Watch out, make sure you don’t deduct home office expenses, rent or utilities in this category — those all have their own category for deductions (home office, rent, and utilities are all categories unto themselves).
#3 Repairs and Maintenance (Line 21)
Did you pay for any machine repairs or maintenance costs for machines or tools you used for work? Or did you pay to repaint your office or fix a broken computer or printer? Costs like these can be deducted as repairs or maintenance. But be careful not to deduct car expenses here or really significant improvements (which would go under “Depreciation or Section 179”).
Tip: If you make an improvement to a business asset, then you’ll deduct it a bit differently! Any improvements that increase the value of an asset need to be recorded over several years on your taxes.
#4 Taxes and License (Line 23)
Do you pay for any business licenses or certifications related to your work? This includes small business license, LLC or incorporation fees, or special accreditations to maintain. Be careful to not deduct your self-employment or income tax here.
#5 Rent or lease (vehicles, equipment, property) (Line 20a)
Do you rent an office space or lease a car or any equipment for your business? Guess what? Those expenses are deductible.
If you have an office space then you can deduct utilities like power, water, garbage, and internet. You can’t, however, deduct utilities for a home office using this category — those go along with your “home office” deduction.
Did you hire a web developer to create a website for your self-employed business or hire any other contractors to help your business? Payments you made to them are tax deductible. This category is only for contractors, so expenses like lawyer fees or employee wages would go elsewhere!
If you have employees, you can deduct their wages, commissions and bonuses — simple as that. Employment taxes can be deducted as well (on Line 23 - Taxes and Licenses)!
#9 Employee benefits programs (Line 14)
Do you have employees and provide them health insurance, liability, education assistance, or other benefits? Costs to provide those benefits are tax deductible. But be sure to deduct your own health insurance and medical costs on your individual 1040 form.
#10 Interest (mortgage) (Line 16a)
Do you have a mortgage on any property used for your business (and not for personal use or your primary home)? You can write off the interest you pay for that mortgage using a Form 1098 that the lender may send you to report interest you’ve paid throughout the year.
#11 Interest (car, other) (Line 16b)
Guess what? You can also deduct any interest on business credit cards, business lines of credit, or interest on car payments. But make sure you only deduct the portion of interest that’s related to your business — no deducting personal interest payments!
Tip: Looking for an easy way to determine your “business usage” of your car? Find the business portion of your miles! If you drove 50,000 miles last year, and know that 25,000 of them were for work, then your business usage of your car is 50%.
#12 Legal/Professional Services (Line 17)
Any fees you’ve paid for legal services, tax preparation or payment to other licensed professionals you can deduct!
Tip: Be sure to only deduct the portion attributed to your business! For example, if you pay an extra fee in order to have your Schedule C prepared, you could deduct that fee.
#13 Contributions to Employee Pension or Retirement plans (Line 19)
If you make contributions you make to your employees’ retirement plans (e.g. 401(k), Keogh plans, profit sharing plans), then these contributions are tax deductible. Make sure to deduct contributions to your own retirement on form 1040 Line 28).
For more detail on what expenses require and allow, please check out the IRS guidelines for the Schedule C Form. The best bet is to find a tax preparer who specializes in self-employment tax to help you maximize all of these deductions and keep as much of your earnings as possible.
1099 business deductions
Posted by Small Cat on 12:00 AM in Real Estate | Comments : 0
A few common occupations that receive a 1099-MISC are sub contractors, real estate brokers and insurance agents. Independent contractors who have their income reported on a 1099-MISC are considered self-employed by the IRS, and are responsible for paying their own taxes. To put it most simply, none of their taxes are withheld during the year.
This can be a double-edged sword for many independent contractors. For those with adequate tax knowledge, or access to a qualified tax professional, receiving a 1099 can actually be a good thing. But for those who are new to an occupation that reports income via the 1099, or believe they are a turbo tax expert, receiving a 1099-Misc can be a disaster at tax time.
In most circumstances, an employee's (someone who receives a W2 by January 31) net wages have already had federal, state and payroll taxes withheld. Employee's are not totally responsible for their own taxes, but an independent contractor is. The first thing that the self-employed has to do is pay their taxes quarterly. The total amount you have to pay quarterly is the smaller of these two numbers, either 100 percent of last year's tax liability, or 90% of the current year's tax liability. Failure to pay in enough throughout the tax year will result in an estimated tax penalty on your tax return.
The second and most crucial part of being an independent contractor is tracking your business expenses during the year. Taxpayers who receive 10&9's are allowed to deduct their expenses from business activities just like a business owner can, in fact, some small business owners and independent contractors use the same form to report their income, a Schedule C.
The most important expense for independent contractors to keep track of are their auto expenses-namely business miles driven. The IRS allows taxpayers to deduct 50 cents for every business mile driven during 2010, the standard mileage rate can not be taken in addition to actual vehicle expenses like gas, repairs, depreciation, and insurance. Independent contractors must decide whether or not they want to use actual expenses, or the standard mileage rate.
Something else that an independent contractor must take in to consideration in regards to mileage is the definition of business miles, not all miles driven are considered business miles. Miles driven from home to your office are considered commuting miles, not business miles. Miles driven from the office to your work site or appointment are considered business miles. And obviously miles that your drive while not at work are considered personal miles and can not be deducted.
For those who decide to use the actual expenses method, your deduction can be figured by totaling up your auto expenses and multiplying that number by the ratio of business miles driven. For example, if you drove 30,000 miles for the year, and half of them were business miles, then you could take half of your auto expense for the year as a deduction.
Other expenses that can be deducted from income for the self-employed include:
• Cost of uniforms / Equipment
• Legal / professional services
• Meals and Entertainment Expenses
One last topic that independent contractors need to consider is the home office deduction. If you use a portion of your home exclusively for business purposes, you can take the deduction. This will enable you to not only deduct a portion of your living expenses, including rent / mortgage interest, insurance, taxes and utilities. The home office deduction will also allow you to turn some of your commuting miles in to business miles.
You can include commuting miles as business miles if you are a small business owner or self-employed person, and you have two offices or work locations: one outside the home, and one inside the home. You will need to fill out form 8832 in addition to a schedule C to correctly file the home office deduction.
The best way for small business owners and independent contractors to save money at tax time is to understand what they are allowed to deduct. An expense and deduction using an excel spreadsheet or QuickBooks is a good way to get started.
IRS Tax Form 1099-MISC – Instructions for Small Businesses & Contractors
In an effort to help make filing taxes easier this year, we are breaking down the various IRS tax forms to help you know if you need them, and how to use them.
If you’re a freelancer or run a small business and use independent contractors, you’re probably familiar with the 1099-MISC form. This form is used to report income to freelancers, independent contractors, and other self-employed individuals who, as their own employer, are generally responsible for paying the employer’s and employee’s portion of taxes.
Thanks to its versatility, businesses and clients use the 1099-MISC form for many different kinds of transactions. It’s very useful, but also potentially confusing because of all the data it can hold.
A 1099-MISC form is a catchall for all miscellaneous income that you provided or received. In an attempt to get all the necessary information for any situation, the IRS uses 18 boxes to collect data. If you’re a payer, you need to know which fields to fill out. And if you’re filling your tax return, you’ll want to know what your numbers mean.
1. Rents. If you rented office space, heavy machinery, soda machines, or live tigers from another company, total up the year’s payments and list them here.
2. Royalties. This includes all royalty payments, such as those from oil or mineral-producing properties.
3. Other income. This can include prizes (but not gambling winnings, as they have their own 1099 variant), damages from a lawsuit, or payments for participating in medical research.
4. Federal income tax withheld. This section is utilized when as a business owner you have to send a 1099 to an independent contractor who has refused to provide his or her W-9 and tax identification number. Just to be on the safe side, the Federal Government requires you withhold 28% of the money you pay to that person and send it to the IRS. In all other situations, it’s up to the independent contractor who receives the 1099 to figure out how to pay their taxes. See the Form 1099-MISC instructions for further explanation on what income you can withhold taxes on.
5. Fishing boat proceeds. Here you report the monetary value of the catch shares that the individual received over the year, plus any other payments made that were contingent on a minimum catch.
6. Medical and healthcare payments. If your business employed a physician to conduct yearly physicals or administer flu shots, you might have to send him or her a 1099-MISC. This would include any amount you paid for medications sold to you by the physician. For example, if the physician charged you $20 per flu shot and $200 for labor, you would also include the $20 per flu shot on this amount.
7. Nonemployee compensation. If any independent contractor did work for your business but wasn’t an employee, here is where you report what you paid that person. You aren’t required to send the contractor a 1099 unless you paid $600 or more during the year. As a contractor, or freelancer, it’s in this box that you’ll find the compensation you need to report to the IRS. Generally, these amounts are subject to self-employment tax and income tax. Golden parachute payments, taxable fringe benefits for employees, and referral fees also should be included here.
8. Substitute payments in lieu of dividends or interest. This situation is extremely uncommon and involves loaning out your dividend-paying securities. If you need to use this section, your broker should send you the details.
9. Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale. This is just a checkbox. You aren’t required to report exactly how much you sold to a buyer, just that you made a sale. This box is useful for organizations such as Amway, since it sells items for resale outside of a traditional retail environment.
10. Crop insurance proceeds. If you received payouts from crop insurance, the amount should be input here.
11. and 12. Blank, for government use only.
13. Excess golden parachute payments. A golden parachute payment is one made to an employee (generally an executive) who is leaving a company and is contractually able to receive a large payment upon departure. Excess payments are those amounts above what the individual received on average over the past five years.
14. Gross proceeds paid to an attorney. Here you must input payments over $600 that went to an attorney for legal services.
15a. Section 409A deferrals. Use this box if you contributed to a section 409A retirement plan but weren’t an employee.
15b. Section 409A income. If you contributed to a section 409A plan but it didn’t meet specific guidelines, it can be counted as taxable income, and you must input the amount here.
16. State tax withheld. If any state tax was withheld, it may be listed here.
17. State/Payer’s state number. If state tax was withheld, enter the identification number of the company that withheld the tax here.
18. State income. This is the amount of money reported on the form that is subject to state tax.
Generally, your business must file a 1099-MISC only if you paid someone $600 or more over the course of the year. If you received more than this amount, expect a 1099-MISC from the payer. A few exceptions include:
- Royalties. $10 minimum reporting threshold.
- Fishing boat proceeds. You must report any amount.
- Consumer goods. If you sold anyone any items for $5,000 or more in a market other than a permanent retail establishment (such as Amway or flea markets), you must report it.
- Tax withholding. If you’ve withheld taxes for someone because they were subject to backup withholding, you must report it no matter how little you paid them during the year.
Keep in mind that the IRS only requires these forms when companies pay vendors in the course of operating a business. When you pay the neighbor kid for babysitting, you don’t have to worry about reporting those payments.
Regular employees have half of their Social Security and Medicare tax paid for by their employer. When paid by contractors and freelancers (who naturally don’t have tax withheld by an employer), this tax is often called “self-employment tax” and is due in addition to regular income tax. To figure the amount of this tax, self-employed individuals need to file Schedule C (or Schedule C-EZ), which is the form used to tally business profits and expenses.
Transfer the revenue from box 7 of your 1099-MISC onto Schedule C and subtract your business expenses to determine whether you had a profit or a loss for the year. Then, transfer that income amount to Form 1040 (subtract a loss from any other income you report, add a profit). If you had a profit, complete Schedule SE to determine how much self-employment tax you owe and transfer that amount to your 1040 as well.
What’s the Difference Between Schedule C and Schedule C-EZ?
In general, Schedule C-EZ is intended for people who did some work on the side or had a very simple small business. You can’t use it if any of the following apply:
- You plan to take the home office deduction
- You spent more than $5,000 on the business in the past year
- You employ additional staff
- You expect a loss for the year (you spent more on the business than you made)
If you’re not sure if you’re eligible for a Schedule C-EZ, don’t risk it. The standard Schedule C won’t take much longer to complete, even if you have small-business expenses to deduct.
If you have a profit after you complete either Schedule C or C-EZ, use Schedule SE to determine how much Social Security and Medicare tax you owe. You have to pay Social Security and Medicare tax on the first $117,000 of money that you earn – anything above that is subject to income tax only. If you didn’t make a profit, you don’t have to fill out this form.
In general, you pay 15.3% of your business profits in Social Security and Medicare taxes. Due to its complex nature, I highly recommend you use a tax program to fill out this form.
There are several cases in which you can report your 1099-MISC money directly on your 1040 without having to worry about whether you need to use Schedule C or Schedule C-EZ.
If your income was reported in box 3 of your 1099-MISC, it is generally not considered “earned income” and you do not need to pay self-employment tax on it. However, you do need to pay regular income tax on it. Report income in box 3 of your 1099-MISC plus these other types of income on your 1040:
- Prizes or Awards. This includes game show or sweepstakes winnings, but not something like an incentive-based contest you won at work.
- Jury Duty Pay. Jury duty pay is taxable as a write-in adjustment to income on your 1040. Label it “Jury Pay.”
- Canceled or Forgiven Debts. Your creditor is required to send you a 1099 with the forgiven or cancelled amount. You might receive a 1099-C for this.
- Barter Income. This counts even if cash didn’t trade hands. If you barter with someone who is a by-the-books type, he or she may send you a 1099-MISC for the value of the services or items they traded with you. Of course, this is your cue to send one for the value of the services or items you traded as well.
- Hobby Income. This is the little bit of money you might earn from a leisure activity – one you do without intending to make any money. Since you weren’t looking for income, it’s not considered self-employment. Still, you’re required to pay regular income tax on it. If you have expenses from your hobby, you can deduct them up to the amount of money you brought in if you itemize. After three profitable years of making money at a hobby, the IRS will consider it a small business and no longer a hobby.
- Gambling Winnings. You may not receive a 1099-MISC (you might get a W-2G), but either way, you should include gambling winnings on your 1040. If any income tax was withheld, as sometimes happens with large payouts, you’ll also account for this on your 1040. If you had winnings, you can deduct gambling losses, but only up to the amount you won.
You may encounter a confounding situation with one or more 1099-MISC forms you receive. Here are a few of the most common:
1. I received a 1099-MISC for income I wasn’t paid until the following year. What do I do?
- Bank account records
- Postmarked envelopes
- PayPal records
- Invoices, paystubs, or other records of payments
2. I got a 1099-MISC for money that was paid to me, but I paid other people with that money. What do I do?
If the payment of that money has anything to do with your business, you can probably deduct it as a business expense on Schedule C.
For example, if you’re a general contractor in charge of building a home, and you paid money to subcontractors such as plumbers, electricians, or drywallers, you can claim the sum of what you paid as a business expense against the income you received on your 1099-MISC. Other examples of business expenses include postage, office supplies or equipment, communication, and travel expenses.
3. The only income I earned all year was reported to me on a 1099-MISC. How much do I owe in taxes?
If you didn’t pay estimated taxes and had no taxes withheld by an employer, you may owe a lot. You’ll owe 15.3% of your profit in Social Security and Medicare taxes right off the bat. Additionally, you’ll have to pay regular income tax, the amount of which will depend on your total income after taking deductions and credits. Plus, you might be penalized for not paying estimated taxes throughout the year (if your tax liability is more than $1,000). But fortunately, filing your taxes is quite simple.
Start by filling out a Schedule C or Schedule C-EZ – this is where you report 1099-MISC income and deduct related expenses. Then, fill out Schedule SE to determine your Social Security and Medicare tax liability. (Half of this amount is deductible when you determine how much regular income tax you owe.)
Last, report your profit from Schedule C (or C-EZ) on your 1040 to figure what you owe in regular income tax. If you know that you’ll only have 1099-MISC income this year, it’s best to pay estimated taxes during the year to avoid an underpayment penalty.
“Miscellaneous9rdquo; is like a double-edged sword when it comes to a 1099 form. It’s an easy way to cover tax issues that don’t fall into conventional categories, but it can create confusion as well. If this is your first year owning a business and dealing with 1099s, it’s worth hiring a tax consultant to make sure you take advantage of all deductions available to you and you schedule the correct amount of estimated taxes for the following year.
Have you had any issues reporting income from a 1099-MISC?