By Michael Lodge
Many individuals are working various jobs, some get paid by a W-2 and then some receive a 1099-MISC for their work performed. On a 1099 there are no taxes taken out and it becomes your responsibility to report the income and pay the self-employment taxes. Now since you received a 1099-MISC you are considered and independent contractor and self-employed, thus you have to pay taxes on the income earned. How do you report it?
QUESTION: I received a form 1099-MISC with an amount in box 7 for non-employee compensation. What forms and schedules should I use to report income earned as an independent contractor?
- Independent contractors report their income on Schedule C. Profit or Loss from Business (Sole Proprietorship). However, you may qualify to use Schedule C-EZ (form 1040). Net Profit from Business (Sole Proprietorship).
- Also file Schedule SE (form 1040), Self-Employment Tax, if net earnings from self-employment are $400 or more. This form allows you to figure social security and Medicare tax due on your net self-employment income.
- You may need to make estimated tax payments. If you need to make estimated tax payments and do not pay them timely, you may also need to file form 2210, Underpayment of Estimated Tax by Individuals, Estates & Trusts.
As an independent contractor you may also have various expenses to go against your income to get to your net income or (loss). If you are traveling you will have travel deductions, auto expenses, insurance, phone costs, perhaps an office in home, and other business expenses that can be used to offset your income. However, you have to keep good records to justify the expense – no made up numbers. It is your responsibility to run your self employment income as a business and documentation is the key to the deductions.
If you have any questions regarding this issue please send it to: email@example.com