By Internal Revenue Service definition, an independent contractor is an individual who does not work under the direct control of an employer. These workers set their own hours, use their own equipment or inventory and are not required to work on their clients' property. Many couriers and delivery workers, for example, work as independent contractors. Each year, their income is reported on a 1099 form instead of a W-2, and they have the right to deduct their business expenses, including those involving a vehicle.
An independent contractor receives a 1099 form detailing earnings from his client. This amount is reported to the IRS by the payer, just as employers issue W-2s to regular employees and send a copy to the government. There's no tax withholding for 1099 workers for income tax or the payroll taxes that go to fund Social Security and Medicare. They report income on Schedule C and also must file Schedule SE to figure self-employment tax, which replaces the payroll taxes paid by and on behalf of regular employees.
Deductions in General
The general IRS rule of thumb is that any expense related to the production of income is deductible. Therefore, if a 1099 independent contractor needs a car to do his job, he can deduct car expenses, including gas, tolls, repairs, insurance, lease costs and parking charges. In addition, if he is required to carry advertising on the car, such as a decal or wrap, those expenses are deductible as well. If he uses a car for work as well as for personal transportation, the IRS requires him to keep track of the percentage used for work. Driving 60 percent of the time for business, for example, means he can only deduct 60 percent of the actual expenses.
Standard Mileage Rate
Independent contractors can deduct actual vehicle expenses or take a standard mileage rate. As of the publication date, the latter method allows them to multiply 56 cents by the number of miles driven for business purposes and deduct that amount for vehicle expenses. Tolls and parking expenses are deductible even when the standard rate is used, and the rate can increase or decrease in a new tax year. The standard mileage rate is not allowed, however, if you're operating a fleet of more than five vehicles.
Reporting Deduction Amounts
An independent contractor uses Schedule C to report income and expenses related to her business. Vehicle expenses go on Line 9 and are combined with all other deductible expenses on Line 28. The IRS also wants an account of when the vehicle was placed in service, the number of miles driven for business and personal use, whether or not the family has another vehicle available and whether or not the expenses are documented. Although drivers don't have to file receipts and repair invoices, they should keep them safe if they're claiming actual expenses.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.