What is a 1099 Contractor?
A 1099 contractor, also known as an independent contractor, is a self-employed individual who provides services to a business or individual but is not considered an employee. Unlike W-2 employees, 1099 contractors are responsible for their own taxes and do not have taxes withheld from their paychecks1
Distinguishing Between 1099 and W-2 Earnings
Tax Forms
- 1099 Contractors Receive 1099-NEC
- W2 Employees Receive W-2
Tax Withholding
- 1099 Contractors receive 1099-NEC
- W2 Employees receive W-2
Benefits
- 1099 Contractors receive no company benefits (unless specified in contract)
- W2 Employees are eligible for company benefits
Control
- 1099 Contractors set their own work hours and methods
- W2 Employees follow work hours and methods set by the employer
Expenses
- 1099 Contractors pay for their own business expenses
- W2 Employees are reimbursed for work-related expenses
Deductions for 1099 Wage Earners
As a 1099 contractor, you can deduct a variety of business expenses to reduce your taxable income. Here are common deductions:
- Home Office Deduction
If you use part of your home exclusively for business, you can deduct related expenses such as utilities, rent, and internet. - Health Insurance Premiums
You can deduct the cost of medical, dental, and long-term care insurance premiums. - Supplies and Equipment
Expenses for office supplies, equipment, and software used for your business are deductible. - Travel Expenses
Costs for business travel, including airfare, lodging, and meals, can be deducted. - Vehicle Expenses
You can deduct the cost of using your car for business purposes, either through actual expenses or the standard mileage rate. - Professional Services
Fees for accountants, lawyers, and other professionals are deductible.
- Advertising and Marketing
Costs for promoting your business, such as advertising, website maintenance, and marketing materials, are deductible. - Education and Training
Expenses for courses, workshops, and seminars related to your business can be deducted. - Self-Employment Tax
You can deduct half of the self-employment tax you pay on your net earnings. - Retirement Contributions
Contributions to SEP-IRA, SIMPLE IRA, or other retirement plans are deductible.
By understanding these distinctions and deductions, 1099 contractors can better manage their finances and take advantage of available tax benefits.