What Is the Standard 1099 Exclusion Percentage?

Many individuals who receive income for independent work on a Form 1099-NEC look for a standard exclusion percentage to reduce their taxes. The Internal Revenue Service (IRS) does not offer a fixed percentage for excluding income. The legal method for reducing your taxable self-employment income is not through an arbitrary percentage but by deducting legitimate business expenses.

This process involves subtracting the costs of carrying on your business from your gross income. For an expense to be deductible, it must be both “ordinary” and “necessary.” An ordinary expense is one that is common and accepted in your industry, while a necessary expense is one that is helpful and appropriate for your business. This calculation of gross income less these expenses determines your net profit, which is the figure subject to taxation.

Common Deductible Business Expenses

Identifying all allowable deductions is the primary way for an independent contractor to lower taxable income. The range of deductible expenses is broad and tied to the nature of your work. Keeping meticulous records of these costs throughout the year is fundamental to substantiating your deductions.

• Home Office Expenses: If you use part of your home exclusively and regularly for business, you can deduct related expenses. The IRS provides a simplified option, which is a standard deduction of $5 per square foot of office space up to 300 square feet. The actual expense method involves calculating the business percentage of your home and applying it to total home expenses like mortgage interest, insurance, utilities, and repairs.
• Office Supplies: The cost of supplies consumed in the day-to-day operation of your business is fully deductible. This includes items like paper, pens, ink cartridges, folders, postage, and cleaning supplies for your workspace.
• Business Use of Your Car: When using your vehicle for business, you can deduct the costs using one of two methods. The standard mileage rate is a set amount per business mile driven, which the IRS adjusts periodically. The actual expense method involves tracking all car-related costs, such as gas, repairs, and insurance, and deducting the portion attributable to business use.
• Software, Subscriptions, and Web Hosting: The costs for software, online subscriptions, and websites used to conduct business are deductible. This includes industry-specific software, professional journals, cloud storage services, and web hosting fees for your business website.
• Business Travel and Meals: If your work requires you to travel, you can deduct many of the costs, including transportation and lodging. For business meals with clients or associates, you can deduct 50% of the cost, provided the meal has a clear business purpose.
• Insurance: Premiums for business insurance, such as professional liability or commercial property insurance, are deductible. Self-employed individuals may also be able to deduct 100% of their health, dental, and long-term care insurance premiums for themselves and their family, provided they are not eligible for an employer-sponsored plan.
• Professional Development and Education: Costs for education that maintains or improves the skills required in your current business are deductible. This can include expenses for workshops, seminars, and continuing education courses, as well as the cost of relevant books and professional publications.
• Professional Services: Fees paid for professional services from accountants, lawyers, or consultants are deductible business expenses. This includes the cost of tax preparation for your business forms or legal advice related to your business operations.
• Phone and Internet Bills: You can deduct the business-use portion of your phone and internet bills. If you have a dedicated business phone line, the entire cost is deductible. If you use a personal line, you must determine the percentage of use that is for business and deduct that portion of your bill.

Calculating and Reporting Your Net Earnings

After determining your gross income and compiling your deductible business expenses, you must calculate and report your net earnings to the IRS. This is done using Schedule C (Form 1040), “Profit or Loss from Business,” which is a required attachment to your personal Form 1040 tax return.

In Part I of Schedule C, you report your total gross receipts or sales. This figure should include all income reported on Forms 1099-NEC or 1099-K, plus any other business income you received. In Part II, “Expenses,” you will enter the total amount for each category of expense on its corresponding line. For expenses that do not fit a predefined category, you can list them in Part V, “Other Expenses.”

Subtracting your total expenses from your gross income will determine your tentative profit or loss. The final calculation on line 31 is your “Net profit or (loss).” This number represents your taxable business income for the year and is carried over from Schedule C to your main Form 1040, where it is combined with any other income to determine your overall tax liability.

The Qualified Business Income Deduction

After calculating your net profit on Schedule C, another deduction may be available to you. The Qualified Business Income (QBI) deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. This deduction is taken on your personal Form 1040 and is separate from the business expense deductions on Schedule C.

The QBI deduction directly reduces your adjusted gross income (AGI), which can lower your overall tax bill. Qualified business income is the net profit from your trade or business. For example, if your Schedule C shows a net profit of $50,000, you might be eligible for a QBI deduction of up to $10,000.

Eligibility for the full deduction depends on your total taxable income. For 2025, the deduction is available without limitation to taxpayers whose taxable income before the QBI deduction is below $197,300 for single filers or $394,600 for joint filers. For those with incomes above these thresholds, the deduction may be limited based on the type of business you operate and other factors.

Self-Employment Tax Considerations

Your net profit on Schedule C also determines your liability for self-employment tax. In addition to income tax, your net earnings from self-employment are subject to this tax, which covers your Social Security and Medicare contributions. When you are self-employed, you are responsible for paying both the employee and employer portions of these taxes.

The self-employment tax rate is 15.3%. This is composed of 12.4% for Social Security on earnings up to an annual limit ($176,100 for 2025) and 2.9% for Medicare with no earnings limit. This tax is calculated on 92.35% of your net self-employment earnings. The calculation is performed on Schedule SE, “Self-Employment Tax,” which you file with your Form 1040.

To help offset this cost, you can deduct one-half of what you pay in self-employment tax from your gross income when calculating your AGI on Form 1040. This is an “above-the-line” deduction, meaning you can take it even if you do not itemize. This adjustment provides a benefit similar to that of employers, who can deduct the share of Social Security and Medicare taxes they pay for their employees.