#1 Car expenses and mileage
Of all deductions available to contractors, mileage and car expenses can provide one of the most sizable write offs. You’re allowed to write off any driving while working, driving between gigs, going to meet clients, or driving out of town for business. In 2016, the standard mileage rate allows you to write 54 cents off of every mile you drive for your business.
There are two methods for tracking and deducting mileage: the actual method and the standard mileage rate. The standard mileage rate takes into account gas, insurance, maintenance and depreciation and is much easier to keep track of and claim. In order to deduct it, keep track of your business miles and multiply the total mileage amount by .54 (the 2016 standard mileage rate). If you use this deduction, you can’t additionally write off insurance or gas because it’s already included in the rate.
Make sure you’re keeping adequate records of your mileage because this is also one of the most often audited expenses for contractors. The IRS recommends spending a few minutes a day (or whenever you drive for business) recording your mileage in a driving log. You will need to log the date, miles, business purpose, plus the starting and ending odometer amount.
#2 Home office expenses
If running your independent business from home, you can potentially count a portion of your home expenses a tax write off. There are two important conditions however to using this deduction:
- Primary place of business: Your home must be where you conduct the majority of your independent business. If you only sometimes work at home out of convenience, then you can’t count it as a deduction.
- Exclusively used for work: The space that you use within your home must be exclusively meant for work. For example, a room that is only your home office or a desk in one room that is reserved only for running your independent business. Ultimately you will write off only a percentage of your home space.
Like deducting mileage, there are two options for deducting home office expenses: the Simplified Method or the Regular Method.
Simplified Method: You can multiply the square footage of your office by the IRS set rate of $5 per square foot for 2016, up to 300 square feet per year.
Regular Method: Track all costs related to your home residence, and determine the portion to allocate to your home office using Form 8829.
Read the full story at Top Ten 1099 Tax Deductions