1099 Tax Deductions List 2025: Top 21 for Contractors

The 1099 tax deductions list for 2025 offers independent contractors a comprehensive guide to maximize tax savings. Key deductions include:

• Home office expenses
• Health insurance premiums
• Retirement plan contributions

Utilizing these deductions can significantly reduce taxable income, potentially saving thousands annually. Contractors should meticulously track expenses using tools like expense trackers to ensure they claim all eligible deductions. By understanding and applying these deductions, contractors can optimize their tax strategy, ensuring compliance and financial efficiency. This proactive approach not only minimizes tax liabilities but also enhances overall business profitability.

With the freedom to organize your business comes the challenge of tracking expenses and deductions.

It can be overwhelming to find the right 1099 deductions to claim that will reduce your federal income tax bill.

If you are a contractor, the odds are good that you want to claim as many business expenses as possible. To make the process of hunting for tax deductions more simple, we put together our list of the best ones for independent contractors and freelancers.

Note: First, check out our 1099 expense tracker for freelancers which makes tracking these tax deductions a whole lot easier. Our app will automatically organize and scan your tax receipts so you can save the most money during tax time. In fact, our users typically save $5,600 from their tax bill at the end of the year with our software. Try a 7-day free trial here.

Then, read on and discover deductions that you may not have ever thought of claiming as a 1099 contractor!

What is a 1099-NEC form?

Form 1099-NEC is used by contractors when making payments to any individual who completes work for them but isn’t a full or part-time employee of the business. Examples include freelancers, independent contractors, the self-employed, and sole proprietors. In short, businesses use this form whenever they hire people like you who don’t work as employees.

The form is available from the Internal Revenue Service (IRS), where it can be downloaded as a PDF. It’s also worth noting that a 1099-NEC form isn’t the same as a 1099-MISC form. The latter is used solely to declare payments made to nonemployees who aren’t subject to self-employment tax. The NEC version of the form is used when those payments are subject to self-employment tax. Think of the form as a way for the IRS to track and verify that every payment a business makes, and that you receive, is legitimate.

Form 1099-NEC has a patchy history. First introduced in 1982, with the current form sharing the design of that original, it was gradually phased out in favor of 1099-MISC. Until 2020, all nonemployee payments were reported in Box 7 of 1099-MISC. The 1099-NEC was brought back in 2020 to address issues related to dual-filing deadlines.

The due date for the form is always January 31, with the recipient using the form to help them complete the appropriate sections of their own tax return. That’s where you, as a contractor, come in. A business should issue a 1099-NEC to you whenever you complete work for them. In addition to your fee, the company should note any commissions, prizes, or awards you’ve earned while working for them.

When you receive the form, you should see that the business paying you has sent “Copy B.” The IRS receives “Copy A,” and these versions of the 1099-NEC are scrutinized during audits. If you’ve received a “Copy A” from a company, you must raise it with them – that copy needs to go to the IRS and the company may land you in trouble if it sends the wrong one.

When examining the form, you should see that your personal information and the amount of money paid to you are all included. Again, check this against your records. The IRS will pick up on any discrepancies. You’ll also see boxes for federal and state taxes. These are typically left empty – you handle those taxes in your own personal tax return – unless you’re obligated to pay backup withholding to the IRS out of any money that you earn.

Who is required to file a 1099-NEC?

Requirements start with the business for which you work. They’re required to complete a 1099-NEC to send to you if the work you did for them totals $600 or more over the course of the year. For instance, you may be a freelancer who does three jobs for a company, each totaling $300. Combined, those jobs amount to $900 in nonemployee payments for the year, meaning those payments are subject to IRS guidelines. The employer has to file a 1099-NEC with you by January 31 of the year following the completion of the work to legally declare the payment.

Should the work total less than $600 for the year, it can be declared using the 1099-MISC form. Thankfully, that doesn’t change much for you as a contractor in your quest to reduce taxable income. Regardless of which form you receive, the money compensation stated on it can still be subject to the below tax deductions. You just require documentation from the business for which you worked to show that you earned the money as a self-employed contractor and are thus eligible for the deductions listed below.

Use the amount stated in Box 1 of your 1099-NEC when reporting self-employment income. However, this information does not go directly into Form 1040, your individual tax return. Instead, report the payments on Schedule C to show income received as a contractor or sole proprietor.

1099 tax deductions list 2025: the 21 best deductions for self-employed contractors

Keep careful records of all your business costs throughout the year to save money when you file your tax return and reduce hassle during tax season.

Being your own boss means you are subject to keeping track of your revenue, tax withholdings, and expenses throughout the year and reporting them to the IRS. You must withhold a certain percentage of all self-employment income so that you can pay self-employment taxes. Remember to keep clean records of your receipts in case you get audited by the IRS.

Here's a list of the best tax deductions available for self-employed workers:

1. self-employment tax

If you are a 1099 self-employed worker, it is pretty much essential to claim this tax deduction. Ironically, to avoid self-employment taxes, you can deduct the fees from your taxes.

If you are a freelancer, small-business owner, or any kind of contractor: you are eligible for the self-employment tax deduction.

The self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare tax). Employees normally pay half of this rate. As an independent contractor, you pay the full 15.3%. You can use our self-employment tax calculator to find out how much you owe.

If you earn over $200,000 per year as a contractor ($250,000 per couple), the IRS requires you to pay an additional 0.9% self-employment tax.

There is a cap on the amount of self-employment income subject to Social Security taxes. The Social Security tax rate for 2024 is 12.4% of your self-employment income, up to $168,600. You do not pay Social Security taxes on income above this limit.

2. home office expenses

Many independent contractors aren't aware that you can deduct the expenses of running a small business home office.

With the home office deduction, you can deduct the cost of utilities, home repairs, and maintenance expenses for your home office. You might also deduct a portion of rent or mortgage interest and property taxes. Track these expenses with our home office spreadsheet.

The IRS will only accept deductions if your home office is primarily used for business use, whether you rent or own. Since the amount deducted depends on the office's square footage, take the time to draft your workspace's dimensions in case of an audit. You can deduct the square footage portion related to your home office by using Form 8829. Read more about how to use the home office simplified method to claim this deduction. Properly keep records of this write-off and report a reasonable amount or you could face a home office deduction audit.

3. internet and phone bills

You should only claim expenses for the phones and the internet for business use.

Invest in a dedicated cell phone to simplify your phone bill calculations. If you use one phone for both business and personal calls, estimate the percentage of time spent on business calls from your bill.

That’s how to use the device to keep it separate for business. So, what about handling the bill for cell phone tax deductions? There are two ways to approach these deductions:

• Deduct device costs one time by writing off 100% of costs for the year you bought it.
• Calculate depreciation by distributing the purchase cost over the lifetime of the device.
  

4. health insurance premiums and medical costs

The health insurance deduction can be one of the largest deductions to claim. If you're covered by a spouse’s plan, you are not eligible. You cannot take this deduction if you were eligible for a spouse's employer plan, even if you did not use it.

Rather than being directly related to your self-employment taxes, health insurance deductions are a personal deduction applicable to an independent contractor. This is an important distinction to keep in mind.

In other words, health insurance tax deductions are more like an adjustment. If you don’t have any insurance help, you will be able to deduct 100% of the costs of premiums.

You will also be able to deduct premiums you paid for a spouse and dependents younger than 27.

Note: For the best way to scan receipts, try Bonsai Tax. our app automatically scans your bank/credit card statements to discover tax write-offs and save you money during tax time. You won't have to worry about categorizing expenses or keeping track of all them. The software will do all of that for you. Claim your 7-day free trial today and see for yourself.

5. meals

While there are some specific criteria for what counts as a business meal deduction and what doesn't, if you take care to record costs as an entrepreneur, you will likely be eligible for a standard meal allowance.

Keep in mind that the meals allowance is for traveling meals (eg away from your general area) as opposed to meals around town

A taxpayer may deduct 50 percent of the food and beverage expenses associated with operating their trade or business.

There must be a business purpose for it to be a tax write-off. Also, entertainment and meal deductions can't be extraordinarily costly depending on your income (sorry, no lobster every night!), and you must have had the meal while traveling on business.

You can also claim standard meal allowances for meals bought at conferences or meals shared with clients and colleagues.

Recently, the government passed a provision for 2024/2025 that allows you to deduct 100% of business meal costs instead of the previous 50% standard.

6. business travel and standard meal allowances

Along with airfare and rental car charges, you can claim lodging and extended stay costs, as well as expenses incurred while taking local transportation such as trains, subways, and taxi services.

A trip must last longer than one workday to qualify as a legitimate business cost. Additionally, you must demonstrate that you spent the night there and that the location was outside the general vicinity of your home office (so, keep track of the receipts).

If a business partner accompanies you, it goes without saying that you will have to remove the cost of their trip from yours. Travel expenses are 100% deductible expenses. If you want to discover tax write-offs and track all your travel expenses, we recommend you use a travel tax deduction tracker.

For deductions of meal per diems, they are calculated according to federal M&IE rates.

You must be “actively engaged in business.” That means meeting with clients, participating in conventions, and other valid claims for a business expense.

A trip is only a business travel tax write-off if it is predominately for business.

7. vehicle use

There are two tax deductions or methods used for resources spent on your car for business: standard mileage deduction and the actual expenses method. You must choose one of two as they are mutually exclusive deductions.

The first method is quite simple and involves calculating your total mileage spent in your car according to the standard mileage rate. We will cover that deduction in the next item below.

The Actual Expense Method

The second method is called the "actual expense method." It takes a little more time to calculate car expenses, but it can potentially eclipse the deductions claimed from mileage. Better to calculate costs using both methods to ascertain which one will yield a higher deduction.

To calculate the actual expenses, determine what percentage of the time you use your car for business. Then, add up your operating expenses. You can deduct the cost of your:

• Car expenses
• Oil changes
• Repairs and maintenance
• Gasoline expenses
• The depreciated value of the automobile
• Fees for licenses and registrations
• Car insurance

Note: If you need help tracking and recording your business expenses, try Bonsai Tax. Our app can seriously save you a lot of money (the average user saves at least $5,600 from their tax bill!). You won't have to worry about what qualifies as a deduction, when taxes are due or how much money you'll owe. Our software will do everything for you. Try a 7-day free trial today.

8. mileage

Tracking miles for taxes and using deducting the standard mileage rate is a simplified method of calculating your write-off.

The standard mileage deduction rate changes annually. In 2024, it is 65.5 cents per mile. Make sure you read up on this year’s rates before you claim your deduction. Better yet, hire an accountant or tax advisor for help.

You should also note that your deduction rate changes depending on the purpose of your drive. If you are driving for charity purposes, the allowance drops to 14 cents per mile. Medical moving has a rate of 16 cents per mile. Miles driven from home to work typically do not count as a tax deduction.

9. interest on home mortgage

To claim interest on your mortgage, you will need to fill out form 1098.

Did you take out a large loan to build the real estate you are using for your business? That's tax-deductible, along with the costs involved in buying land. The IRS publication 936 has all the details for you if you question whether a home mortgage is deductible. Check out our full list of real estate agent tax deductions.

Just make sure that the building you use for business and pay interest on isn't used for personal use as a home or family home. The IRS only allows contractors to deduct mortgage interest on building sites used exclusively for business.

If you want to track your deductions and save a lot of money during tax time, try Bonsai Tax. See for yourself, why folks are saying our tax software is the best for freelancers.

10. other loan interest

Noticed a trend in tax deductions for self-employed businesses? If the costs are split between business and personal life, you must calculate the percentage used exclusively for business. That trend doesn't end when trying to take advantage of other interest charges.

Do you have a business credit card? Maybe you opened a line of credit to get the business on its feet? Interest on car loan payments? You deduct any loan interest incurred for the business.

11. publications and subscriptions

Part of becoming a member of an industry is reading cutting-edge literature and journalism covering the business world. That means you will need to buy publications and subscriptions, and those media materials are tax-deductible business expenses.

If you’re a freelance writer or journalist, it is more important than ever to keep records of all the professional books and publications you buy. They’re all tax-deductible as long as you can demonstrate that it was critical to your business development.

12. education and training

The IRS supports independent contractors of all stripes in continuing their education. You can deduct the cost of books, transportation, lectures, supplies, and tuition if you invest in your education long-term.

The key is you must demonstrate that educational costs are for "qualifying work-related education" to the IRS in Publication 970. Business expenses would be only deductible expenses if they helped you improve skills vital to your business.

In other words, your fees for classes, books, and tuition must go toward furthering your current career or trade.

13. premiums for business insurance

Not every independent contractor invests in business insurance. However, suppose you do decide to go all-in. In that case, the IRS offers provisions for you to extract deductions from the cost of business insurance.

It is not only business insurance premiums for yourself that are deductible. If you hired new employees for the current tax year and you offered them accident and insurance, you are in luck! Those costs are also deductible.

14. rent

Many freelancers, writers, producers, or creatives spend most of their time away from their homes when conducting business.

You can deduct the costs of rent for workspaces away from home. Say you work in a shared space, commercial kitchen, or an artist studio--if you pay rent to use that space for business you can deduct it.

By extension, if you end a rental agreement with the space you use as your primary place of business, you can also deduct some of the costs of breaking a rental contract. If you have outstanding bills with the landlord, make sure you pay those before claiming the deduction. You can include deducting home rent as a part of your home office deduction!

15. start-up costs

You can deduct up to $5,000 in start-up costs as an independent contractor. To ease the collection process, here are some typical start-up costs:

• Advertising
• Interviewing employees
• Fees for tax advice
• Fees for accountancy tasks
• Buying business licenses
• Researching industry trends
• Vetting possible business locations
• Travel spent on starting the business
• Hiring Lawyers and Experts for Guidance

Formation costs for LLC’s vary from state to state. In addition to the original $5,000 in start-up fees, you can also deduct $5,000 more if you opened as LLC and accrued costs associated with licensing in the state and local economy.

16. advertising

Many contractors invest a considerable amount of advertising resources to promote their business. Promoting your brand’s image across media of various kinds helps to bring in more clients and customers.

Tax deductions for self-employed workers include provisions for advertising fees. All media types are valid deductions:

• Google Ads
• Facebook ads
• TV commercials
• Traditional print media like business cards, flyers, and billboards

Even clothing that promotes your firm is deductible. This includes both the cost of the apparel and the cost of imprinting your company's brand on it. So, you can write-off clothing for work that is promotional as a miscellaneous deduction on your tax return.

Just make sure you record all your advertising contracts before filing. The IRS regularly audits deductions claiming to be from advertising.

17. retirement plan contributions

Intelligent business owners start early when investing in their retirement.

If you contribute to retirement plans now, you will be surprised at the gains you can make over a more extended period. The IRS website for self-employed retirement plans details what the different options are for self-employed people.

You won't be able to contribute more than you make annually. Consider investing in a self-employed retirement plan if you have plenty of profit left over.

18. office expenses

Odds are, you regularly spend on office supplies. These include:

• Paper
• Printers
• Computers

The list is endless. The only thing to do is search for the correct line item.

Office expenses don't stop at the physical equipment for your business either.

Do you hire professionals to clean your office space? Do you have monthly charges for maintenance and IT? While you might hire help for your office, be a bit more specific and expense payments to contractors as Contract Labor.

19. depreciation of assets

It is a great idea to deduct the costs of these assets' depreciation.

Any asset with a life longer than one year and isn't inventory should be depreciated, regardless of age or how long you've owned. For example, if you buy a new computer, you'd begin depreciating it when you 'placed it in service' (aka started using it). Depreciation begins when placed in service.

Itemizing deductions for depreciation of assets does, unfortunately, require filling out the separate Form 4562. When completing this form, you will be expected to record the lifetime under which your equipment aged.

20. contract labor

One good sign that a business is getting off the ground is outsourcing tasks to outside contractors.

Sometimes, small business owners need to hire out for projects in order to grow their business. For instance, hiring a computer programmer to optimize a site’s code, or paying a fleet of expert writers or laborers by the hour. The IRS sees that the business is improving and worth investing in.

Keep in mind, you can only deduct costs for contract labor in this category. If you have a lawyer on retainer or advance a previous contractor to a full-time employee, those costs should be deducted elsewhere. Use Bonsai’s Equipment Depreciation Calculator to estimate how much an asset depreciates each year.

21. sales and income taxes

Sales tax, generally, is already included in the cost of items already deducted. For example, if you buy office supplies, you don't have to deduct the supplies and sales tax separately.

If you pay general sales tax, it's usually a better idea to take the sales tax break if you had large purchases in the tax year. We would count purchases of automobiles, long trips, or weddings among those.

Track your tax deductions accurately and calculate both the standard deduction and itemized deductions. As a business owner, always choose the higher deduction to reduce your taxable income.

Legal, accounting, and tax services

What legal, accounting, and tax services can you deduct?

You can deduct fees paid for legal, accounting, and tax services that directly relate to your business operations. This includes payments to lawyers for contract reviews, accountants for bookkeeping or tax preparation, and tax advisors for planning and compliance. The IRS allows these expenses as ordinary and necessary business costs on your Schedule C or relevant business tax form for 2024 and 2025.

For example, if you hire a CPA to prepare your 2024 tax return or consult a lawyer to draft a client contract, those fees qualify as deductible expenses. However, personal legal fees, such as those for divorce or estate planning unrelated to your business, are not deductible. Keep detailed invoices and payment records to substantiate these deductions in case of an audit.

To maximize your deductions, separate legal and accounting expenses from personal costs. Use accounting software like QuickBooks or FreshBooks to categorize these expenses accurately. This practice simplifies tax filing and ensures you claim all eligible deductions for 2025.

How to track and document these expenses effectively

Tracking legal, accounting, and tax service expenses starts with organizing receipts and invoices as soon as you receive them. Use digital tools such as Expensify or Receipt Bank to scan and store documents securely. These platforms integrate with popular accounting software, making it easier to categorize expenses under the correct tax codes for 2025.

Maintaining a dedicated business bank account or credit card also helps isolate these expenses from personal spending. This separation reduces errors and supports clear documentation. Additionally, keep notes on the purpose of each service, especially if the expense covers multiple activities, to clarify its business relevance during tax preparation.

At tax time, review your records with your accountant or tax preparer to ensure all eligible legal and accounting fees are included. This proactive approach prevents missed deductions and can lower your taxable income significantly.

Using tax software and professional help for accurate deductions

Tax software like TurboTax Self-Employed or H&R Block Premium can guide freelancers and small business owners through claiming legal, accounting, and tax service deductions for 2025. These programs prompt you to enter relevant expenses and help ensure compliance with current IRS rules.

However, complex situations may require professional advice. For instance, if you operate in multiple states or have unusual legal fees, consulting a tax professional can prevent costly mistakes. Many accountants offer virtual consultations, making expert help accessible and affordable.

Combining software tools with professional guidance creates a reliable system for maximizing deductions while minimizing audit risks. Start early in the tax year to gather documents and ask questions, so you are fully prepared when filing your 2025 return.

Meals (deductible business meals)

Understanding deductible business meals for 1099 contractors

Deductible business meals are meals directly related to your freelance or contract work that can reduce your taxable income on your 1099 tax return. For the 2025 tax year, the IRS allows you to deduct 50% of the cost of business meals if they are necessary and directly associated with your work. You can deduct half the expense of meals when meeting clients, discussing projects, or traveling for business purposes.

To qualify, the meal must not be lavish or extravagant, and you or an employee must be present at the meal. For example, if you meet a client at a restaurant to discuss a project, you can deduct 50% of that meal's cost. However, meals that are purely social or personal do not qualify. Keep detailed records, including receipts and notes about the business purpose, to support your deduction in case of an audit.

Understanding these rules helps you maximize your deductions without risking IRS penalties. Using apps like Expensify or QuickBooks Self-Employed can simplify tracking your meal expenses and attaching relevant notes, making tax time easier and more accurate.

How to document and claim meal deductions on your 1099

Proper documentation is key to claiming meal deductions on your 1099 tax return in 2025. The IRS requires you to keep receipts showing the date, location, amount, and business purpose of the meal. Additionally, note who attended the meal and their business relationship to you. This information proves the expense was work-related.

For example, if you had a $60 dinner with a potential client, save the receipt and write a short note like “Discussed project proposal with client Jane Doe.” Use tools like Shoeboxed or Evernote to organize receipts and notes efficiently.

When filing, report your deductible meal expenses on Schedule C under “Meals and entertainment.” Remember to only deduct 50% of the total cost unless the meal qualifies for the temporary 100% deduction available for certain meals provided by restaurants through 2024 and 2025, as part of COVID-19 relief measures. Staying organized throughout the year ensures you don’t miss out on these valuable deductions.

Maximizing meal deductions while avoiding common mistakes

Maximizing your meal deductions means understanding both the rules and common pitfalls. One common mistake freelancers make is claiming 100% of meal costs when only 50% is deductible. The exception is meals provided by restaurants, which are 100% deductible through 2025, so always check the source of the meal expense.

Another frequent error is poor record-keeping. Without clear documentation, the IRS may disallow your deduction. Use smartphone apps like MileIQ or QuickBooks Self-Employed to log expenses immediately after the meal. Also, avoid deducting meals that mix personal and business purposes, as these can trigger audits.

To maximize deductions, plan client meetings during business hours and keep meals reasonable in cost. For example, a $30 lunch with a client is safer to deduct than an extravagant $200 dinner. By following these tips and maintaining accurate records, you can confidently reduce your taxable income and keep your freelance finances healthy in 2025.

Business travel expenses

What qualifies as a deductible business travel expense

Business travel expenses are deductible when the trip is primarily for work purposes. This includes travel away from your tax home that requires an overnight stay or substantial rest. Common deductible costs include:

• Transportation
• Lodging
• Meals
• Incidental expenses directly related to business activities

If you fly to another city to meet a client or attend a conference, your airfare, hotel, and 50% of your meal costs are deductible under IRS rules for the 2025 tax year. Personal side trips during business travel are not deductible. Keep detailed records and receipts to prove the business nature of your travel.

To maximize deductions, separate personal expenses from business costs and document the purpose of each trip. Using apps like Expensify or QuickBooks Self-Employed can help track and categorize your travel expenses accurately for your 1099 tax filing in 2025.

How to deduct transportation costs during business travel

Transportation expenses are fully deductible when traveling for business. This includes airfare, train tickets, rental cars, taxis, rideshares like Uber or Lyft, and mileage if you use your personal vehicle. For 2025, the IRS standard mileage rate is 65.5 cents per mile for business travel.

If you rent a car, keep all receipts and only deduct the portion used for business. Similarly, if you use your personal car, log your business miles separately from personal miles using mileage tracking apps such as MileIQ or Stride. These tools generate reports that simplify deduction claims on your Schedule C.

Remember, commuting costs from home to your regular workplace are not deductible. Only travel that requires you to stay overnight or significantly disrupts your normal routine qualifies. Accurate mileage logs and receipts are essential to avoid IRS scrutiny during audits.

Deducting lodging and meals on business trips

Lodging expenses during business travel are fully deductible if the stay is necessary for work. This includes hotel rooms, Airbnb rentals, or other accommodations. Keep itemized receipts showing the dates and location to support your deduction claims for the 2025 tax year.

Meals are deductible at 50% when traveling for business, including meals at restaurants or room service. The IRS allows this partial deduction to account for the personal benefit of meals. For example, if you spend $100 on meals during a business trip, you can deduct $50 on your 1099 tax return.

To ensure compliance, separate meal expenses from entertainment and avoid lavish or extravagant costs. Using expense tracking software like FreshBooks or Bonsai can help you categorize these expenses properly and prepare for tax season efficiently.

Cell phone and internet bills

How to deduct cell phone expenses for 2025 taxes

You can deduct the portion of your cell phone bill that relates to business use on your 2025 tax return. The IRS allows freelancers and small business owners to claim expenses for cell phone services if the phone is used for work. To calculate the deductible amount, track your business calls and data usage separately from personal use. For example, if 60% of your monthly $100 phone bill is for business, you can deduct $60 each month.

Keep detailed records such as phone bills and a log of business calls or data usage. Apps like MileIQ or Expensify can help track business use automatically. If you use your personal phone exclusively for business, you may be able to deduct the entire bill, but most taxpayers need to allocate between personal and business use.

To claim this deduction, report it on Schedule C if you are a sole proprietor or on your business tax return if you operate as an LLC or corporation. Proper documentation is key to avoiding issues during an IRS audit. Regularly review your phone usage to maximize your deduction without overclaiming.

Including internet expenses in your 1099 tax deductions list 2025

Internet bills are deductible when used for business purposes, making them an important part of your 1099 tax deductions list for 2025. If you work from home or run an online business, you can deduct the percentage of your internet costs that directly support your work. For instance, if your monthly internet bill is $80 and you estimate 70% of usage is for business, you can deduct $56 per month.

To accurately determine the deductible amount, track your internet usage or estimate based on work hours. Some internet providers offer separate business plans, which can simplify deductions. Alternatively, you can use a reasonable method to allocate costs between personal and business use, but keep documentation to support your estimates.

Deduct internet expenses on Schedule C or your business tax return, depending on your business structure. Use tools like QuickBooks Self-Employed to categorize and track these expenses throughout the year. This makes tax time easier and ensures you don’t miss this valuable deduction.

Maximizing deductions and avoiding common mistakes

To maximize your cell phone and internet deductions, keep thorough records and separate business from personal use clearly. Avoid claiming 100% of your bills unless you exclusively use these services for business, as this can trigger IRS scrutiny. Instead, use a reasonable allocation method supported by logs or usage data.

Many freelancers underestimate these deductions or fail to track usage, leaving money on the table. Using apps like Toggl or RescueTime can help monitor how much time you spend on business activities online. Additionally, review your bills monthly to adjust your deduction percentage if your business use fluctuates.

Finally, consult with a tax professional or use tax software like TurboTax Self-Employed to ensure you’re applying the correct deduction rules for 2025. Staying organized and proactive can reduce your taxable income and increase your refund or lower your tax bill.

Home office deduction

Understanding the home office deduction for 2025

The home office deduction allows freelancers and small business owners to deduct expenses related to the part of their home used exclusively for work. In 2025, this deduction remains a valuable way to lower taxable income for those who meet IRS criteria. The space must be used regularly and exclusively for business activities, such as a dedicated room or a clearly defined area.

For example, if you use a spare bedroom as your office and it represents 10% of your home's total square footage, you can deduct 10% of eligible expenses like rent, utilities, and insurance. This deduction applies whether you own or rent your home, making it accessible for many 1099 workers.

To claim the home office deduction, you’ll need to fill out Form 8829 if you’re a sole proprietor. Keeping detailed records and measurements of your workspace will make this process smoother and help you maximize your deduction.

Which expenses qualify for the home office deduction?

Expenses that qualify for the home office deduction fall into two categories:

• Direct costs, which are expenses only for the business part of your home, such as painting or repairs in your office space. These can be fully deducted.
• Indirect costs, which include expenses for the entire home like mortgage interest, rent, utilities, homeowners insurance, and property taxes. You can deduct a portion based on the percentage of your home used for business.

Indirect costs include expenses for the entire home, like mortgage interest, rent, utilities, homeowners insurance, and property taxes. You can deduct a portion of these based on the percentage of your home used for business. For example, if your office is 200 square feet and your home is 2,000 square feet, you can deduct 10% of these indirect expenses.

In 2025, you can also deduct depreciation on your home if you own it, which requires careful record-keeping. Using accounting software like QuickBooks Self-Employed can help track these expenses accurately throughout the year.

How to calculate and claim the home office deduction

There are two methods to calculate the home office deduction in 2025: the simplified method and the regular method. The simplified method allows a standard deduction of $5 per square foot of your home office, up to 300 square feet, capping the deduction at $1,500. This method requires less record-keeping but may result in a smaller deduction.

The regular method involves calculating actual expenses and allocating the business-use percentage. This method can yield a larger deduction if you have high home expenses, but it requires detailed records of all qualifying costs. For example, if your total home expenses are $12,000 annually and your office is 10% of your home, your deduction would be $1,200.

To claim the deduction, report your expenses on Schedule C and attach Form 8829 if using the regular method. Using tax software like TurboTax or consulting a tax professional can ensure you maximize your deduction and comply with IRS rules.

Self-employment tax deduction

What is the self-employment tax deduction?

The self-employment tax deduction allows freelancers and small business owners to reduce their taxable income by deducting half of their self-employment tax. This tax covers Social Security and Medicare contributions that would normally be split between an employer and employee. Since self-employed individuals pay both portions, the IRS permits deducting 50% of this tax to ease the burden.

For 2025, the self-employment tax rate remains at 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. If your net earnings from self-employment are $160,200 or less, you pay the full 12.4% Social Security portion; earnings above this are exempt from Social Security tax but still subject to Medicare tax. Deducting half of this tax directly lowers your adjusted gross income (AGI), which can reduce your overall tax liability.

Understanding this deduction is crucial for anyone filing a 1099 form in 2025. It helps you keep more of your earnings by legally lowering the taxes you owe. To claim it, you’ll report your net profit on Schedule C and calculate the deduction on Schedule SE when filing your federal return.

How to calculate and claim the deduction

Calculating the self-employment tax deduction starts with determining your net earnings from self-employment. Use Schedule C to report your business income and expenses, which gives you your net profit. Then, on Schedule SE, you calculate your total self-employment tax based on that net profit.

Once you have the total self-employment tax, you can deduct exactly half of that amount on Form 1040, Schedule 1, Line 15 for the 2025 tax year filing in 2026. For example, if your self-employment tax is $3,000, you can deduct $1,500 from your gross income. This deduction is an adjustment to income, so you don't need to itemize to benefit from it.

Using tax software like TurboTax or H&R Block can simplify this process by automatically calculating your self-employment tax and the corresponding deduction. Keep detailed records of your income and expenses throughout the year to ensure accuracy and maximize your deduction.

Special considerations and state-specific rules

While the federal self-employment tax deduction applies nationwide, some states have additional rules or do not tax self-employment income the same way. For instance, states like Texas and Florida do not have a state income tax, so the deduction mainly affects your federal return. However, states such as California and New York tax self-employment income and may have different reporting requirements.

Additionally, if you live in a state with a high income tax rate, reducing your federal adjusted gross income through this deduction can indirectly lower your state tax burden. Be sure to check your state's department of revenue website or consult a tax professional to understand how this deduction interacts with your state taxes.

Remember that the self-employment tax deduction only applies to the tax itself, not to other business expenses or income taxes. To maximize your overall deductions, combine this with other 1099 tax deductions like:

• Home office expenses
• Health insurance premiums
• Business supplies

What to do with a 1099-NEC?

The first thing you should do when you receive your 1099-NEC is to check “Box 1 – Nonemployee Compensation.” There, you’ll see the amount of money the business for which you worked says that they paid you for your services. Once you have that number, compare it to your financial records, such as the invoice you submitted to the company.

If they match, then great! You can now work out how much money you need to set aside to pay taxes on that 1099 income.

Your records are in order, and the IRS will see that, too. Remember that they have Copy A of your 1099-NEC and will compare it to the 1040 and Schedule C you submit to check that you are eligible for 1099 tax deductions.

Note: Try Bonsai’s Self-Employment Calculator to work out the numbers as accurately as possible and reduce the chances of an IRS audit.

What if the numbers don’t match?

Let’s say that a company paid you $2,000 for some consulting work. You charged that amount on your invoice and it’s what you received when you completed the contract. However, when you receive your 1099-NEC from that business, you see “$4,000” in Box 1.

That’s a problem. It looks like the company has double-reported what they paid you. If you don’t remedy the issue, the IRS will require you to pay income tax on $4,000 for a job for which you only earned $2,000.

Contact the company that issued the 1099-NEC immediately.

If you’re lucky, it won’t have filed “Copy A” with the IRS yet, allowing you to rectify the situation before the IRS is even aware of it. But if it’s already been submitted, make sure you have copies of written confirmation of the mistake by the business before contacting the IRS at 800-829-1040. You’ll be asked for your name, phone number, address, dates of employment, and Social Security Number, as well as details about the payer. The IRS should then get in touch with the payer to ask for the corrected form.

Sadly, this process can take a long time, potentially leaving you in a situation where you need to submit your tax returns before you have the corrected form. In these cases, the IRS recommends that you still submit your taxes by the deadline – which is April 18, in most cases – while using the above phone number to stay in touch about the issue.

Finally, if you receive the corrected Form 1099-NEC after filing your taxes and the information varies from the estimate you entered in your tax return, you’ll need to file an amendment. You can usually do this with Form 1040-X.

How to make deductions with form 1099-NEC

Receiving a 1099-NEC allows you to make deductions via your Schedule C, which you use to calculate profits and losses from your self-employment. The deductions we've listed here all count as ones you can make. Any others must be business-related expenses. The IRS offers more general guidelines for what those expenses might be:

• Ordinary – The expense is considered ordinary for your business purposes, meaning that it’s an expense that any other person in your field would incur. Mileage for somebody who operates a self-employed chauffeur service is a good example. These types of contractors may also be able to deduct a portion of their car payments, depending on their circumstances.
• Necessary – Your claimed deduction was necessary to complete the work you had to do, but might not necessarily be ordinary for your line of work. For instance, a client may require you to buy a specific piece of software to work on their project. That expense is necessary because your client has requested it, but may not be ordinary if it’s not a standard software that everybody in your industry uses.

Moving on to Schedule C, you’ll add all income noted on any 1099-NEC forms you receive to any self-employed earnings that aren’t reported on these forms together. Then, you subtract any relevant deductible expenses from your total business income. These deductions can be claimed by freelancers, contractors, sole proprietors, and the self-employed.

The resulting number is your net figure, which you transfer across to Form 1040 along with any other earnings, such as employee wages and work-based commissions, income, and deductions to reach your final taxable income. Many contractors use tax software for this purpose, especially if they receive income from several sources.

When is form 1099-NEC due?

Any business for which you work as a contractor must submit Form 1099-NEC either by January 31 or the next business day should January 31 fall on a holiday or weekend. Failure to file the form could result in the business incurring a penalty – ranging from $60 to $310 per form – with the scale of that penalty depending on how far the form is past due.

Should your client intentionally disregard the need to provide a 1099-NEC form, they’re subject to a penalty of at least $630 per form. However, the specific dollar amount will be 10% of the reported income if that number is higher than $630.

The IRS says a business can ask for an extension to this deadline under selected hardship conditions. Furthermore, you may experience delays if you’re subject to backup withholding and have failed to provide an accurate taxpayer identification number to your client.

As for you, as the contractor, you don’t have to send Form 1099-NEC to the IRS. They should receive a copy at the same time as you receive yours, meaning your only task is to declare the income received as part of your taxable income on your Schedule C and Form 1040.

Where is the 1099-NEC form sent?

Your client should make two copies of Form 1099-NEC, with one being sent directly to the IRS while the other should go to you. These are called “Copy A” and “Copy B,” with you receiving the “B” copy.

Businesses may also create a “Copy C” of the form, which they’ll keep as part of their own records. They may create two more copies – “Copy 1” and “Copy 2” – if your self-employed income needs reporting on a state income tax return. Requirements for the latter forms vary by state and federal laws. Some states require their own copies of your 1099-NEC forms, while others take part in a combined federal and state program allowing access as soon as “Copy A” is received by the IRS.

Coming back to “Copy B,” you should receive that form at your registered business address.

What are the pros and cons of 1099-NEC for the self-employed?

Let’s confront another question – should you become a 1099 independent contractor or a typical W-2 employee? It’s a tough question to answer. There are pros and cons to each situation, some of which can affect you when you try to apply for loans or if you desire stable earnings. So, you need to consider the advantages and drawbacks of going down the contractor route, with this breakdown helping you to make your decision.

Pros of 1099s for the self-employed

We’ll start with the positive side – the pros of being a 1099 worker.

1 – Controlling Your Schedule and Rates

As a 1099 worker, you’re essentially operating a small business. That means you have more control – both over your schedule and the rates you charge – than a W-2 employee. For instance, let’s say that a business needs to create a piece of software. If you’re a W-2 employee, that task may fall under your work duties, meaning you work under the schedule your workplace dictates and likely receive no income in addition to your salary.

It’s different for a 1099 contractor.

The business will contact you about the project, after which you get to set the terms. So, you control the deadline – allowing you to suggest a realistic completion time – and set a price for the job. Of course, your client has the option of rejecting or negotiating your terms. But you’re far less likely to find yourself working under unfavorable conditions as a 1099 contractor.

2 – You’re Not Tied to a Single Employer

You can work for as many people as you can handle when you’re a 1099 contractor. That’s ideal for those who wish to create multiple income streams because it means you’re not reliant on a single company for your income. If one client decides to end an agreement – or goes out a business – you’re free to seek out other clients due to your independent contractor status. Plus, existing clients have no control over whether you accept new clients while you’re working for them.

Of course, the more clients you have, the more 1099-NEC forms you’ll receive come January 31. But the point is that you have the option – work for one client to keep things simple or take on several to increase your cash flow. Additionally, the fact that you can take on as many clients as you like means there’s technically no ceiling to how much you can earn as a 1099 contractor. W-2 employees don’t have that benefit. They’re limited by their salary or hourly range, and may even be prevented from finding outside work per the conditions of their contracts.

3 – You Can Make Self-Employment Tax Deductions

All independent contractors are classified as self-employed by the IRS, meaning they can deduct relevant business expenses from their income taxes. You’ve seen 21 of those expenses in this article, and there may be more besides based on the IRS guidelines that the expenses must be both "ordinary" and "necessary." Such expenses can include:

• Office supplies
• Home office deductions
• Business travel
• Professional services
• Equipment and software

• Advertising costs
• Education expenses
• Expenses related to market research

Almost anything that’s required to do your work can be classed as an expense. As a W-2 employee, those expenses are often covered by your workplace, meaning you can’t claim them on your tax return.

Speaking of tax, a 1099 contractor doesn’t have to worry about a client deducting federal, state, or local taxes from their income. You handle those taxes yourself, meaning you receive the full dollar amount you charge rather than a salary that has pre-deductions.

Cons of 1099 for the self-employed

While freedom – and payment flexibility – are massive benefits for 1099 contractors, there are some downsides you need to understand before going down the self-employed route.

1 – You Have to Stay on Top of Changing Tax Laws

The rules surrounding self-employment income – as well as 1099 forms – can change annually. As a contractor, you have to be aware of these changes as they occur to ensure you’re declaring the correct income and expenses on your Schedule C and Form 1040.

The very existence of the 1099-NEC form is a good example. It was taken out of commission in 1982, only returning in 2020. During that gap, any 1099 wages you received had to be reported in Box 7 of a 1099-MISC form. That form still exists, and is typically used for payments below $600, meaning you may have to take care of two types of forms to properly declare your income.

Other potential changes could include the filing dates for 1099-NECs and the minimum dollar amount for such a form to be filed. Check the IRS’s information about these forms every few months to ensure you don’t miss a change that could affect you come tax time.

2 – Less Income Predictability

While there’s no real ceiling on how much you can earn as a 1099 contractor, there’s also no certainty. You’re not salaried. That means you may have weeks – or even months – where you generate minimal income.

This lack of income predictability can also make it harder to apply for loans and mortgages. The lender has to go through extra steps to verify your income and may enforce stricter eligibility criteria on you than they would a typical W-2 employee.

3 – Lack of Company Connection

Not being tied to a specific company offers plenty of benefits in terms of working freedom, but it also comes with the drawback of potentially feeling disconnected from your client. For example, let’s say your client holds a company barbecue. The nature of your work may mean that you operate inside their business and have built relationships with several of the client’s employees. But you’re still an “outsider.” So, you may not get invites to such events.

On the financial level, this lack of connection means you won’t receive any benefits from your client – unless they’re specified in your contract – and your contract could end at any time. There’s also the audit risk to consider. The IRS treats you as self-employed and may audit your tax returns if they suspect some sort of malpractice. That’s typically not an issue for W-2 employees as they don’t have to worry about handling their own business expenses.

Final takeaway

At the end of the day, the IRS wants to help fledgling and experienced self-owned businesses. They offer many ways to reduce your tax liability, like the Goodwill tax deduction. Search for the expenses or deductions available to self-employed workers to lower your tax bill.

That's where Bonsai comes in. If you want to get a leg up on your year-end tax forms, check out our tax receipt organizer. We provide tools to run your freelance and contracting business. It’s free to get started, and it can help you claim all 21 tax deductions from this list and more. Remember, you must keep receipts for three years after filing in case of an audit. Maintain clean, organized records of your receipts.

Disclaimer: Tax rules frequently change and are highly specific to your situation. Please consult a qualified tax advisor for tax advice.‍

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