The Internal Revenue Service (IRS) treats independent contractors similarly to sole proprietors and other business owners. The tax deductions available to businesses are also available to independent contractors if the expense relates to an income-producing activity. However, these deductions are not available to contract employees who are temporarily on a company’s payroll. Employee contractors are eligible to deduct the work-related expenses if they do not receive reimbursement.
Both independent contractors and temporary employees are eligible to deduct local transportation costs when using a personal vehicle for work purposes. Qualified transportation costs include all business travel during a work day, excluding the commutes directly to and from work and home. You can calculate the deductible amount by multiplying the total miles you drive for work by the IRS standard mileage rate. Alternatively, you can elect to calculate the deduction using actual costs. This method requires you to keep records of all car-related expenses, as well as the percentage of total miles you drive that are work related. The deduction is the product of multiplying the work percentage by total car expenses. Employees include work-related vehicle expenses in miscellaneous deductions. You can only deduct the portion of total miscellaneous deductions that exceed 2 percent of adjusted gross income. Independent contractors can deduct the entire expense without limitation.
If you are an independent contractor, you are eligible to deduct the premiums you pay to obtain medical coverage for you and family members. Temporary employees who do not receive medical coverage from an employer and are personally responsible for premium payments are eligible to deduct the annual costs. However, you can only deduct the portion of total premiums and other medical expenses you pay during the year that exceed 7.5 percent of adjusted gross income.
You can deduct a portion of personal housing expenses if you regularly and exclusively use an area of the home for work purposes. The requirements are the same for employees and independent contractors in that working at home must be for the convenience of a client or employer. If you choose to work at home for convenience, the deduction is not available. Deductible expenses can include rent, utilities, mortgage interest and cleaning services. However, only the percentage of total housing expenses equal to the ratio of square footage used for business to total square footage of the home is eligible for the deduction.
If business reasons require overnight travel to an area outside of the location where you normally conduct work-related activities, you can deduct the amount you pay for lodging, transportation and food. However, you can only deduct 50 percent of the amount you pay for meals and reasonable gratuities at restaurants.
You can deduct the cost of purchasing and maintaining a uniform that you must wear when working. The deduction is available only if the uniform is not appropriate for wear outside of work.
- Internal Revenue Service: Publication 334 Tax Guide for Small Business
- Internal Revenue Service: Publication 463 Travel, Entertainment, Gift and Car Expenses
- Internal Revenue Service: Publication 502 Medical and Dental Expenses
- Internal Revenue Service: Publication 587 Business Use of Your Home
- Internal Revenue Service: Publication 529 Miscellaneous Deductions
Jeff Franco's professional writing career began in 2010. With expertise in federal taxation, law and accounting, he has published articles in various online publications. Franco holds a Master of Business Administration in accounting and a Master of Science in taxation from Fordham University. He also holds a Juris Doctor from Brooklyn Law School.