How To File 1099 Taxes
The most common tax question asked by self-employed individuals is how to file 1099 taxes. There are multiple subtypes of 1099, such as 1099A or C, which involve foreclosures and repossessions, or 1099S, which involves proceeds from the sale of real estate. However, the most common 1099 is a 1099MISC. This form reports payments made to independent contractors, employee vehicle reimbursements, and other miscellaneous income not included as wages. Wages for standard employees are reported on a W-2 and taxes are withheld by the employer. A 1099 is different in that these monies are not taxed and are generally paid to independent contractors who are not defined as employees by the IRS.
In the case of self-employed individuals, if a particular company pays an individual more than $600 in a year, the IRS requires that income to be reported on a 1099MISC. For example, an independent carrier for a local newspaper might average $12,000 in payments from a newspaper in a given year. The publisher would be required to file a 1099MISC with the IRS and supply a copy to the carrier. The independent carrier would then report that income on his personal income tax return.
- To file taxes on income reported on 1099MISC, carefully follow the instructions provided for a standard 1040 form. Depending on deductions, a Schedule C may be required to report gains or losses from a business.
- Box 3 on a 1099MISC is generally, where most self-employed individuals will find their total income from a particular source. (Boxes 1 and 2 are usually rents and income from real estate.) This total is then entered as “Other Income” on a 1040 return.
- Keep in mind — a self-employed individual who makes more than $400 for the year is required to file taxes to determine their self-employment tax liability. Even if you anticipate no tax liability for the year, you are still required to file a return.
- If the income listed on 1099MISC is a result of business activities (such as providing services, performing work as an independent contractor, etc.) then a completed Schedule C should accompany your 1040 return.
- Depending on the nature of the income shown on 1099MISC, additional forms or schedules may be required. For example, if an amount was shown in Box 10 of your 1099MISC, you would need to include a completed Schedule F (Profit or Loss from Farming) with your 1040 return. Box 10 only applies to farmers, as this is where crop insurance proceeds are reported by insuring entities.
- For self-employed indidviduals, you are responsible for paying self-employment taxes as part of your overall income tax liability. Determining your self employment tax liability is accomplished by filing a Schedule SE (Profit or Loss from Self Employment) with the rest of your tax forms.
Tip: The IRS recommends that any individual who works for themselves and expects their tax liability to be more than $1,000 for the year should pay estimated taxes quarterly. These payments are computed and paid via Form 1040-ES for each quarter you receive self employed income. When you file your taxes for the year, report estimated tax payments on your return to offset your tax liability. There is a section on your 1040 for tax payments, including withholdings from wages and estimated tax payments made on self employment income.
For more information on how to file tax returns involving 1099 forms, the IRS offers numerous publications. You can find forms, schedules, instructions, and topic articles at www.irs.gov.