It’s March and tax season is right around the corner. Normally, I am frollicing around the city, enjoying the beautiful weather and dancing at SXSW shows. This year is different.
Why? 1099 income.
I’ve spent most of my professional career earning W-2 income. This means my taxes were automatically withheld from my paycheck each month and come tax season, not only could I could quickly file return, but I also received a pretty nice refund a few weeks later.
Beginning 2015, I chose to pursue a different path. One that allowed me to work on my terms and didn’t require I formally commit with any single company. Turns out, with great freedom comes great responsibility.
At the beginning of January, I started receiving several 1099 income tax forms. Organizing my business expenses, keeping up with my tax forms and filing a return has been a killer task. Learn from my mistakes by reading 5 important things to know about 1099 income.
What is 1099 Income?
1099 income is any non-employee income you receive. Common sources include interest income, dividend income, retirement withdrawals and self-employed or independent contractor income.
How is 1099 Income different than W-2 income?
Simply put, 1099 income and W-2 income are forms that report income for two different types of workers.
W2 employees have their payroll taxes automatically deducted from their paychecks.
1099 independent contractors, freelancers or self-employed individuals are responsible for paying their own payroll taxes on a quarterly basis.
Can I deduct business expenses as a 1099 contractor or W2 employee?
Both W2 employees and 1099 independent contractors, freelancers or self-employed individuals may deduct qualified business expenses to reduce their tax bill.
For a complete list of W2 employee deductible expenses, check out IRS publication here.
For a complete list of 1099 deductible expenses, check out IRS publication here.
What if I don’t receive a 1099 for work I was paid on?
In some instances, you may not receive a 1099 for work you completed during the year. Maybe your employer has your old address or they simply do not provide you with a 1099 form. Unfortunately, this doesn't mean you are off the hook.
You are still responsible for reporting all income whether a 1099 was received or not. You do not need to provide a copy of your 1099 to the IRS, but you are responsible for reporting the income as Schedule C income.
I am an Entrepreneur. Am I responsible for sending 1099’s?
As a business owner, you must issue a Form 1099-MISC to each person to whom you have paid at least $600 in rents, services, prizes and awards, or other income payments.
Penalties for failing to send out a Form 1099 can range from $30-100 per form.