Let’s be honest: Taxes aren’t exactly most people’s idea of a good time. So it’s understandable if you don’t want to spend more time on taxes than you have to. But when you fly through your taxes just to get them over with, you can often pay a steep price — literally.
By reporting all of the tax deductions you’re eligible for, you may end up owing less in taxes or even receiving a higher tax refund. But it requires keeping track of your business expenses and reporting them in your tax forms.
While you should always reach out to a tax expert or financial advisor for questions specific to your circumstances, it’s worth investigating if you’re eligible for federal tax deductions that may apply to independent contractors.
1. Mileage & car-related expenses
Anyone who owns a car knows that the expenses add up quickly. Independent contractors, however, can sometimes deduct car expenses related to their work.
There are some conditions, of course. One is that you can’t write off expenses if you’re driving to and from the same workplace every day. That’s considered commuting and is not eligible for deduction. But workers who use their vehicle to provide their services may be eligible to deduct their vehicle expenses.
If you are eligible, you can calculate your car-related expenses in one of two ways. One way is by using the standard mileage rate, while the other involves adding up all of your car-related expenses — everything from insurance to lease payments to gas — and multiplying it by the percentage of the time you use the car for business.
If you qualify for either method, you can calculate both and claim whichever value is higher. There are even apps like Stride to help you track business miles.
2. Other modes of transportation
Other forms of transportation, like public transit and rideshares, can also be eligible for deductions if an independent contractor uses them for business purposes (again, not including commuting to a regular workplace).
Just as with claiming car expenses, you can only deduct the travel directly related to business. If you have a monthly metro pass, but only use it for business-related purposes 20% of the time, you can only claim 20% of the overall cost. If you take the bus or a rideshare to the hardware store to buy gloves for your warehouse shift, that ride is eligible, but not the ride you take to the gym afterward.
3. Your cell phone & internet bills
If you use your cell phone related to your 1099 work (and if you use Instawork, odds are you do) you can often write off a portion of your monthly bill. And if you use your cell phone to book Instawork shifts or communicate with Partners while connected to your Wi-Fi at home, you may be able to deduct some of your internet bill too.
Because the personal use of cell phones/internet is not eligible for deduction, you’ll have to calculate how much of it is related to your work. (Sensing a theme here?) To figure out how much you can write off, take the total annual cost of your cell phone and/or internet bill and multiply it by the percent of the time it was used for business.
4. Small tools & gear
If you’ve bought tools or gear necessary for your work, they may be eligible for a tax deduction. There are some rules, though. One of them is that the items should last less than one year. An example for Instawork Pros might include a pair of work gloves for warehouse shifts that wear out in a year with regular use.
If the gear you have to buy is clothing, it’s only eligible if it’s not suited for everyday use. A pair of black pants for a catering gig, for example, wouldn’t be eligible, but a hat branded with the name of your employer could be.
5. Education & training
Independent contractors can often claim education and training expenses related to their jobs. According to the IRS, education/training has to either a) maintain or improve skills needed in your present work or b) be required by law to keep your present salary, status, or job. (If you’re not sure if you meet the criteria, this quiz the IRS has might help.)
Eligible expenses for Instawork Pros might include a food handlers card or alcohol training for servers, or a safety course for warehouse workers.
6. Health insurance
Health insurance can be expensive, especially when you don’t have an employer paying part (or all) of your premiums for you. But if you’re self-employed, you may be able to write off some of those healthcare costs. This can include health insurance, dental insurance, and long-term care insurance for yourself, your spouse, and your dependents, among others. You can find the details here.
7. Retirement plan contributions
You might think of retirement plans as something that only full-time employees get, but there are options for independent contractors, too, like:
- Traditional IRAs
- Solo 401(k)s
- SEP IRAs
- And more
And for some of these accounts, contributions you make could be eligible for deduction. Find details about the different account options and how to set them up here.
While it may take some extra time to research deductions, it could be well worth your time to do it — so consider talking to a trusted tax professional to see what you may qualify for.