A Bookkeeping Guide for 1099 Contractors: Track Income & Save on Taxes

If you’re a 1099 contractor, freelancer or gig worker- keeping track of your income and expenses is essential. It helps to stay tax-compliant and maximise deductions. Unlike traditional employees, 1099 workers are responsible for their own taxes. Which is why proper bookkeeping is crucial to save you thousands of dollars every year.

In this guide, we’ll cover how to track income, categorize expenses and use AI-powered bookkeeping tools to simplify tax season.

Why Bookkeeping is Essential for 1099 Contractors

As a self-employed worker, you don’t have an employer withholding taxes for you. This means:

• You must report all income to the IRS.
• You’re responsible for quarterly estimated tax payments.
• You can deduct business expenses to lower your taxable income.

Without organized financial records, you risk overpaying taxes, missing deductions or facing IRS penalties. That’s where bookkeeping comes in.

Step 1: Track Your 1099 Income Properly

How to Track Income from Multiple Sources

Most 1099 workers have multiple income streams—clients, gig platforms, or direct payments. To stay organized:

• Keep a record of all income sources, including 1099-NEC, 1099-K, PayPal, Venmo and direct deposits.
• Use bookkeeping software to automatically track payments and invoices.
• Match income with bank deposits to avoid underreporting to the IRS.

Pro Tip: AI-powered bookkeeping tools like Tabby can automatically sync with your bank account and track all incoming payments in one place.

Step 2: Categorize Business Expenses for Maximum Tax Deductions

As a 1099 contractor, you can deduct expenses that are ordinary and necessary for your business. Here are the most common tax-deductible expenses:

1. Home Office Deduction

If you work from home, you can deduct a portion of your rent, utilities, and internet expenses.
How to calculate it:

• Simplified method: $5 per square foot (up to 300 sq ft).
• Actual method: Deduct a percentage of rent and utilities based on office space usage.

2. Internet & Phone Bills

If you use your phone or internet for work, you can deduct the business portion of your bill.

3. Office Supplies & Equipment

Includes laptops, software, printers, desks, chairs and other necessary tools for your work.

4. Travel & Business Meals

If you travel for work, your flights, hotels, and transportation are deductible. Business meals are 50% deductible—just keep the receipt!

5. Marketing & Advertising

If you spend money on a website, social media ads, or business cards, those costs are fully deductible.

6. Health Insurance Premiums

If you’re self-employed and pay for your own health insurance, you can deduct the full amount.

Pro Tip: AI-powered bookkeeping software like Tabby automatically categorizes expenses, so you don’t have to do it manually.

Step 3: Set Aside Money for Taxes & Make Quarterly Payments

As a 1099 contractor, you don’t have taxes withheld from your paycheck, so you need to set aside a percentage of your income for taxes.

How Much Should You Save?

• Self-employment tax: 15.3% (Social Security & Medicare).
• Federal & state income taxes: 10-30% (varies by income).
• Total to save: 25-35% of your income.

Quarterly Estimated Tax Deadlines

1099 workers must pay estimated taxes 4 times a year:
April 15 | June 15 | September 15 | January 15

Pro Tip: AI bookkeeping tools track your income and estimate quarterly taxes, so you never miss a deadline.

Step 4: Keep Digital Records & Stay Audit-Proof

The IRS requires you to keep financial records for at least 3 years. To avoid audit risks:

• Save digital receipts for expenses.
• Keep a record of invoices and payments.
• Use AI bookkeeping software to organize everything automatically.

Pro Tip: Tools like Tabby allow you to snap pictures of receipts and attach them to transactions for easy tracking.

Step 5: Automate Bookkeeping with AI & Save Time

Manually tracking income and expenses can be time-consuming. Instead, use AI-powered bookkeeping software like Tabby to:

• Automatically track income & expenses from bank accounts.
• Auto-categorize expenses for tax deductions.
• Generate tax-ready reports for easy filing.

Why AI Bookkeeping is a Game-Changer for 1099 Workers:

• No manual data entry – AI does the work for you.
• Real-time tax tracking – Know exactly how much you owe.
• Easy tax filing – Export reports for your accountant or DIY tax filing.

Bookkeeping doesn’t have to be complicated or stressful. By tracking your income, categorizing expenses and using AI-powered tools, you can:

• Save money on taxes by maximizing deductions.
• Avoid IRS penalties by making timely payments.
• Focus on growing your business instead of crunching numbers.

Tired of spreadsheets? Let AI do the bookkeeping for you!
Sign up for Tabby today and simplify your 1099 finances!