We previously shared common 1099 deductions, so in preparation for tax season, we wanted to share 1099 write-offs you probably didn’t know about.
1099 Write-Offs You Probably Didn’t Know About
Business startup and organizational costs
If you started your business this year, you can write off many expenses associated with starting your business. In business terms, these are known as startup costs. In tax terms, these are known as investigation costs.
Startup costs include:
- Acquiring an existing business
- Consultant fees
- Customer surveys
- Equipment costs
- Leasing a business property
- Market research
- Product research
- Site selection costs
- Wages and salaries for training
Similarly, you can also deduct many organizational costs. These are the costs of forming your organization – specifically, a corporation, LLC, or partnership.
Organizational costs include:
- Accounting fees
- Legal fees
- Organizational meetings
- Partnership filing or incorporation fees
- Temporary directors
To deduct the costs above, make sure the fees you are writing off are only applicable to forming your organization. Other accounting or legal fees do not apply here.
Cell Phone Costs
If you use your cell phone for personal and business purposes, then you can deduct a portion of your cell phone bill costs from your taxes.
To do this, estimate the percentage of your cell phone plan that is used for business purposes, and then write off that percentage. You can review your phone usage for a typical month and then average that for the entire year.
Commission and Fees
Some commissions and fees can be written off. However, when and how they can be deducted varies.
Commissions and fees that are considered capital expenses must be amortized, which means spreading them out over 15 years, which includes these types of commissions and fees:
- Getting a lease on a business property
- Issuing and selling stock or securities
- Getting a mortgage on a business building
Contributions to Employee Pension or Retirement Plans
The contributions you make to your employees’ retirement plans are tax-deductible. This includes 401(k), Simple 401(k), Solo 401(k), Traditional IRA, Roth IRA, SEP IRA, Simple IRA, and pension plans.
You can deduct the interest you pay on your business’s debt. This includes interest on credit cards, lines of credit, and car payments.
Remember: You can only write off business-related interest, not personal interest payments.
Depreciation of Assets
Just like your car, business assets wear out over time and depreciate. You can then write off part of the cost of those assets over time. The write-off amount and length of time depend on the type of asset.
You can write off these types of assets:
- Tractors, some manufacturing tools, and some livestock
- Computers, office equipment, office furniture, and appliances
- Cars and light trucks
- Construction assets
- Land improvements, such as roads, sidewalks, and landscaping
The length of time an asset can be written off is between 3 years and nearly 30 years, so ask your tax professional for more information concerning your business’s assets.
Employee Benefits Programs
If you have employees and you provide them with benefits, you can write off the costs of providing those benefits. Benefits that are tax deductible include:
- Health insurance
- Life insurance
- Tuition reimbursement
- Employee meal costs
- Paid leave
- Student loan payments
Legal and Professional Services
You can deduct payments made to professional services that are necessary to your business, including:
- Legal services
- Tax preparation
- Consulting services
Remember that if you use the same services for business and personal reasons, you can only write off the portion of the services completed for your business.
If you create or pay a contractor to create a marketing asset, you can deduct those costs. You can also write off the cost of distributing those assets. For example:
- Designing, printing, and mailing a postcard
- Creating social media ads and running them on Facebook
- Renting a booth at a trade show
- Hiring a marketing agency
Mileage or Car Expenses
If you drive for your business, then you will want to write off mileage or car expenses. You can only choose one and here’s the difference between the two:
To use the standard Mileage deduction, you keep track of your business-related mileage and can deduct so many cents per mile. For the 2022 tax year, the standard mileage rate is 62.5 cents per mile.
Most businesses use this deduction because it is easier to track.
To use the Car Expenses deduction, you itemize your car expenses. This includes the cost of:
- Car payments or leasing payments
- Car washes
- Parking fees
Pro tip: Once you deduct car expenses, you can’t go back to writing off mileage. So evaluate your business vehicle situation in the long term to determine which deduction is best for you.
If you have a mortgage on a property that you use for your business (not your personal residence or for another personal use), you can write off the interest you pay on that mortgage. Usually, your lender will send you a report listing the interest you’ve paid throughout the year, making this an easy deduction to calculate.
Rent or Lease (Vehicles, Equipment, Property)
If you rent or lease an office space, or lease a vehicle or other equipment for your business, those expenses are deductible.
Repairs and Maintenance
Most equipment requires repair and maintenance to keep functioning for your business. In many cases, you can deduct these expenses.
You can write off these repair and maintenance expenses:
- Machine repairs
- Routine maintenance on the property
- Repainting your office
- Fixing a broken printer
You cannot write off these expenses here:
- Car repairs – see Car Expenses to deduct these properly
- Significant improvements to your property or building – see Depreciation of Assets to deduct these properly
Maximize Your 1099 Deductions
It’s best to speak to a tax professional to ensure you maximize your deductions and save your business money. We recommend taking this list and any other details you believe you may be able to use as write-offs to your tax professional so they can verify that you fulfill their requirements and implement them for you.
In the meantime, sign up for a free eFile360 account so you’re ready to file your 1099s, 1098s, W‑2s, and Affordable Care Act forms.