Tax Deductions for Veterans Doing 1099 Work

Contractor, not employee

• There is no such thing as a "1099 employee." Under the tax code you are either an employee (you get a W-2) or an independent contractor (you get a Form 1099-NEC) — never both.
• For 2026, the amount a business must pay you before it is required to send you a Form 1099-NEC rose from $600 to $2,000. You may do several small contracts and get no form at all.
• That does not make the money tax-free. You owe income tax and self-employment tax on every dollar of business income whether or not anyone sends you a form.

Pay as you go

• I pay estimated tax four times a year on Form 1040-ES. Check the IRS instructions for this year's exact due dates and use them.
• On top of income tax, I owe self-employment tax — 15.3% of my net earnings, covering both halves of Social Security and Medicare that an employer would normally split with me. That's reported on Schedule SE.
• I do get something back for it: I deduct one-half of my self-employment tax as an adjustment to income — on the 2025 Schedule 1 (Form 1040) that was line 15. Confirm the line number on the current year's form.

Solo 401(k)

You can contribute as both the "employee" and the "employer" of your own business.

• For 2026, total contributions to a one-participant (solo) 401(k) — your employee deferral plus your employer contribution — cannot exceed $72,000.
• Within that cap, your own employee deferral is limited to $24,500.
• If you're a sole proprietor, the employer share is NOT 25% of your Schedule C profit. Reduce your net self-employment earnings by the deductible half of your SE tax first, then the real rate works out to about 20% of that adjusted number. IRS Publication 560 has worked examples.
• Catch-up contributions on top of the $72,000 cap: an extra $8,000 if you're 50 or older, or an extra $11,250 instead if you're age 60 through 63.
• These limits are indexed and change every year — verify them before you contribute.

Qualified Business Income (QBI)

Section 199A of the tax code, not a loophole — a deduction Congress wrote in on purpose.

• Eligible owners of sole proprietorships, partnerships and S corporations may deduct up to 20% of their qualified business income — not the same thing as net income. QBI excludes W-2 wages, most capital gains, and investment income.
• For 2026 the income thresholds are $201,750 (single) and $403,500 (married filing jointly). At or below your threshold, you get the full 20% with no extra limits. Only above the threshold do wage and business-type limits start to phase in — for 2026 that phase-in runs to $276,750 (single) and $553,500 (joint).
• New for 2026: the deduction was made permanent, and there's now a minimum QBI deduction of $400 for anyone with at least $1,000 of qualified business income from an active trade or business.
• This deduction is not independent of the others on this page. QBI is reduced by the deductible half of your SE tax, by your health insurance deduction below, and by retirement contributions like the solo 401(k) above — these don't simply stack and add up.

Self-employed health insurance premiums

• If your business shows a net profit, you can deduct 100% of premiums for medical, dental, vision and qualified long-term care insurance — for yourself, your spouse, your dependents, and any child of yours who was under 27 at year's end, even if that child isn't your dependent. Claim it on Form 7206.
• Three limits: the deduction can't exceed your net profit from the business; you lose it for any month you were eligible for a subsidized health plan through any employer of yours, your spouse's, a dependent's, or an under-27 child's — eligibility alone disqualifies the month, even if you never enrolled; and long-term care premiums are capped by age.
• 2026 long-term care premium caps: age 40 or under, $500; 41–50, $930; 51–60, $1,860; 61–70, $4,960; over 70, $6,200.

Deduct part of your home

• The space generally must be used both exclusively and regularly for your business, and be your principal place of business. Two exceptions: space used regularly to store inventory or product samples doesn't need to be exclusive if your home is the business's only fixed location; and a qualified daycare facility doesn't need exclusive use either.
• Regular method (Form 8829): deduct a business-use percentage of rent, utilities, insurance and repairs, plus mortgage interest and real estate taxes — never your mortgage principal. A basic home phone line's monthly charge is personal and never deductible; a second line or business long-distance is.
• Simplified method: a flat $5 per square foot, up to 300 square feet — $1,500 maximum, no expense records to keep.
• Either way, the deduction can't exceed the income from that business use of your home — it can't create a loss. Under the regular method, the disallowed excess carries forward to next year. Under the simplified method it does not carry forward — it's lost for good.
• If you own your home and use the regular method, you're depreciating part of it. When you sell, depreciation taken after May 6, 1997 cannot be shielded by the home-sale tax exclusion — you'll owe tax on it then. The simplified method has no depreciation and no later recapture. Pick your method on purpose, not by habit.

Equipment, mileage, and other business expenses

• An expense is deductible if it's ordinary and necessary for your business. Mixed-use items like your phone or laptop are deductible only for the business-use share, and you need to be able to back that up.
• Equipment is normally depreciated over time. A Section 179 election can let you expense it the year you place it in service, subject to an income limit. 100% bonus depreciation is also available for qualified property bought after January 19, 2025. Which is better depends on your income — worth a call to a tax professional.
• Mileage — this is the one that changed mid-year. For 2026, the standard mileage rate is 72.5 cents per mile for business driving from January 1 through June 30, and it rose to 76 cents per mile for driving on or after July 1, 2026. If you drove for business in both halves of the year, track the two periods separately.
• You must choose the standard mileage rate in the first year a car is available for business use. If you use actual expenses that first year instead, you generally can't switch to the standard rate for that car later — treat the choice as close to permanent. Commuting between home and a regular workplace is never deductible, and the standard rate can't be used if you run five or more business cars at once.
• Either method — standard rate or actual costs — requires a mileage log you keep as you go, not one you reconstruct in April.

Keep the proof, and know what's not covered here

• Home office exclusive use, business mileage, and business-use percentage of a phone are the deductions most often disallowed on audit. All three need contemporaneous records — the burden of proof is on you, not the IRS.
• This page covers federal tax rules only. Your state, and possibly your city, taxes this income too, with its own rules. Check with a tax professional about what your state requires.

You don't have to pay someone to do this

• IRS VITA (Volunteer Income Tax Assistance) and Tax Counseling for the Elderly offer free return preparation to people under the program's income limit.
• MilTax, through Military OneSource, offers free tax software and help to recent separatees and their Families — search "MilTax Military OneSource" to find it.