Reporting 1099 Income

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Introducing Form 1099 MISC: What is a 1099?

If you are self employed or an independent contractor, then instead of a W-2, you will receive a Form 1099 MISC for services that you perform.

1099s are much more complicated than W-2s, so this lens is dedicated to answering the following questions...

What are the 1099 rules?
What do I do if I receive a 1099?
How do I report my 1099 income?

Got more questions about 1099s? Please submit them in the guestbook area below, and I'll be sure to add them to this lens!

*** Did you know that you can deduct expenses against your 1099 income? Click here for a list of common deductions for independent contractors. ***

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* How to file and pay income taxes on your online income
* How to qualify for and deduct your home office
* About self employment taxes and how to minimize them
* The most common deductions available to online business owners
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1099 Basics 

While most people are aware they must report wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don't realize that they must also report other income, such as:

* cash earned from side jobs,
* barter exchanges of goods or services,
* awards, prizes, contest winnings and
* gambling winnings

You must report all income from any source and any country unless it is explicitly exempt under the U.S. tax code.

Most of the income above is reported to you on a Form 1099.

It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income.

All income earned through the taxpayer's business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.

Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.

Tax Tips for Online Biz Owners 

Reporting 1099 Income 

If you work as an independent contractor, then instead of a W-2, you will receive a Form 1099-MISC reporting your earnings.

However the company is not required to file this report unless you receive $600 or more in income.

Reporting 1099 income is not as easy as reporting W-2 income as you have to complete additional forms (Schedule C - Profit or Loss from Business and Schedule SE - Self Employment Tax).

The good news is that as an independent contractor, you get to deduct expenses against this income, assuming the expenses are necessary to run your business.

Report your income from your 1099 and any associated expenses on either Schedule C-EZ or Schedule C - Profit or Loss from Business. This schedule is then attached to your Form 1040.

*** Are you an online business owner? Click here for a list of common deductions for online business owners. ***

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1099 Tax Deductions 

If you receive a Form 1099 for services you provided, your first question is generally "how do I report this 1099 income?"

Then, when you realize that you have to pay self employment taxes on top of regular taxes on that 1099 income, your next question should be "what 1099 tax deductions can I take?"

Here is a list of common tax deductions for 1099 independent contractors:

* Inventory
* eBay fees
* PayPal fees or shopping cart fees
* Shipping fees and supplies
* Postage
* Office supplies
* Advertising
* Mileage - use your car for business purposes
* Phone - cell phone or second line
* Bank charges - business checking account
* Accounting and legal fees
* Computer and software
* Internet, website and faxing services
* Contract labor - VA, coaches, web designer
* Furniture and office equipment
* Membership fees and dues
* Continuing education
* Home office expenses

These are just a few tax deductions for independent contractors. As always, please contact your tax professional to determine what deductions you are entitled to.

More 1099 Deductions for Independent Contractors 

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1099 Questions 

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Are You a Small Business? The IRS Wants to Know... 

With all the income opportunities on the Internet, more and more people are blogging, setting up websites, and selling stuff on eBay. It's no surprise then that one of the most frequently asked tax questions is "does the IRS consider me a small business owner"?

According to the IRS, you are self employed if you carry on a trade or business as a sole proprietor, or if you are an independent contractor. Even if your business is part time, or you have a full time job in addition to your business, you are still self employed.

So basically, you are a small business owner if:

- you did work for someone else and you will be receiving a Form 1099-MISC
- you had a side job in addition to your normal job, such as selling Tupperware, Pampered Chef, Candelite, or something similar (and they didn't withhold taxes)
- you sold items on eBay for a profit
- you did computer work (blogging, web design, free-lance writing, etc.) and you got paid for it

In most cases, if you have any of the income above, you are considered a sole proprietor (unless you incorporated your business or have a partnership). As a sole proprietor, you must report your income from your small business on Schedule C, which is then attached to your personal income tax return.

Also, as a sole proprietor you are subject to the self employment tax. Don't forget to deduct your business expenses to minimize your taxes from your online business.

Issuing 1099 Forms 

If you're a small business owner, in addition to receiving 1099 forms, you may need to issue 1099 forms.

Up until now, I've focused on providing information to self employed people who receive 1099 forms. Recently, I've been getting a lot of questions from self employed people asking if/when they need to ISSUE 1099 forms.

Basically, here are the 1099 rules. If you pay someone for rent, services, affiliates, or other fees, you may need to issue that person a Form 1099-MISC.

You first need to determine if the person in question is an independent contractor or an employee. While this topic is a whole new discussion (will cover in a later lens), it's important to mention here because if you give someone a Form 1099 who you should really treat as an employee, then you could be held liable.

Once you've determined that the person is an independent contractor, you need to get their name, address and social security number. You do this by having them complete a Form W-9.

If you paid someone $600 or more for services provided during the year, you need to issue them a Form 1099-MISC. One exception is if the person who provided the services has a business that is incorporated.

1099s must be provided to independent contractors by January 31; you must file copies with the IRS by February 28.

You can get 1099 forms by calling the IRS at 1-800-TAX-FORM (1-800-829-3676), or by clicking here. Or, you can file Form 1099 online using FileTaxes.com for a small fee per form (this is the service that I use).

Note: You can use Turbo Tax Home & Business and Tax Act Home & Business to prepare W-2 and 1099 forms also.

Tax Software 

For the Do-It-Your-Selfers

Here are the top tax software programs for those of you who prepare your own tax returns.

Turbo Tax 2008 isn't yet available on Amazon.com, I've included 2007 for people who have yet to file for that tax year and will update as soon as the 2008 Turbo Tax is available.
H&R Block TaxCut 2008 Home & Business + e-file [OLD VERSION]

H&R Block TaxCut 2008 Home & Business + e-file [OLD VERSION]

Amazon Price: $22.99 (as of 12/14/2009) Buy Now

TaxCut 2008 Home & Business (Old Version) [DOWNLOAD]

TaxCut 2008 Home & Business (Old Version) [DOWNLOAD]

Amazon Price: $75.99 (as of 12/14/2009) Buy Now

TurboTax Home & Business Federal + State + eFile 2008 [OLD VERSION]

TurboTax Home & Business Federal + State + eFile 2008 [OLD VERSION]

Amazon Price: $45.77 (as of 12/14/2009) Buy Now

TurboTax Business + eFile 2008 [OLD VERSION]

TurboTax Business + eFile 2008 [OLD VERSION]

Amazon Price: $25.44 (as of 12/14/2009) Buy Now

Where to Find Free 1099 Tax Forms 

So you need to send someone a Form 1099... but where do you go to find free 1099 tax forms?

You can view Form 1099-MISC online at the IRS website.

However, this is an information copy only. It's not scan-able, therefore the IRS won't accept it (they may even fine you for using it).

However, you can order official IRS forms by calling 1-800-TAX-FORM (1-800-829-3676), or by clicking here.

Another resource that I love for filing 1099 forms is www.FileTaxes.com. While it's not free, you can complete and file various 1099 and other tax forms at FileTaxes.com for a very reasonable fee.

FileTaxes.com will even mail your 1099s for you (exception: they won't mail the state copies, but they mail copies to the IRS and to the recipient of the form, this is a very nice feature!).

This is a huge time-saver, and is definitely worth the small fee in my opinion.

Finally, you can always go to the office supply store to buy tax forms, but they usually come in packages of 10-50 forms and can cost up to $25.

Tax Consulting for Self Employed Business Owners 

Are you an independent contractor or a self employed business owner? Do you have questions about how to report your income, or what expenses you are allowed to deduct?

Self employment taxes can add up quickly, so it's important to understand all the tax breaks you are entitled to as a self employed person.

If you have questions like...

* Do I need to report my income?
* How/where do I report my income?
* What expenses can I deduct?
* Do I need to make estimated tax payments?
* Should I hire a tax professional?

We can help! The New Biz Tax Consultation is a one-on-one telephone consultation in which we discuss these questions and more.

Contact us to schedule your New Biz Tax Consultation today!

What Questions Do You Have About 1099s? 

Submit them here...

submit
  • Reply
    kkalinoski kkalinoski Jan 27, 2009 @ 5:57 pm
    I contract to a company who normally pays 30 days after the end of the month. For example, for the work I perform in November 1-30 of 2008, I would receive my compensation at the end of December in 2008. The company routinely accurately dates the check with the current date.

    In December, I turned in my hours at the end of the month. I just received the December compensation 1/26/09, but the check curiously was back dated to 12/31/08. The client is now intending to put that compensation I received in January 2009 back into my 2008 1099. As a small business company, I use a cash accounting basis and recognize revenue only when received.

    How can I dispute the 1099 amount that this company has issued to the IRS? The company told me if I don't like the amount, then I should cross it out and write in a new amount on the 1099 I provide to the IRS. I think the company owes me an amended 1099. What recourse do I have?
  • Reply
    EbizTaxTips EbizTaxTips Jan 27, 2009 @ 11:49 am
    cmlindenmuth - if your boyfriend under-reports his income, he will probably get a letter from the IRS showing the difference between the amount reported on his 1099 (assuming the person files a 1099) and the income reported on his tax return. He can amend his return and pay the additional tax due at that time. He should continue trying to get a copy of the 1099 in the meantime.
  • Reply
    cmlindenmuth cmlindenmuth Jan 27, 2009 @ 9:46 am
    I have a question that I hope someone can answer!

    My boyfriend worked as a subcontractor for one person all year. They just recently had a falling out. This person is will nto answer my boyfriends phone calls or emails for his 1099. My boyfriend kept poor records all of 2008. We're tring to get all the info. together, but I am afraid we're missing some income. What will happen if he does not report all of his income?
  • Reply
    rydigga rydigga Jan 8, 2009 @ 4:38 pm
    Bookmarked for April 15th. Thanks for sharing!
  • Reply
    Susan52 Susan52 Jun 19, 2008 @ 4:43 pm
    I've dealt with 1099s for the last eight years of being an independent contractor. Good thing I keep very good records because one of the people I contract with always has to check with me to see if she has the amount right on the 1099 she prepares for me. My tax guy (who happens to be my dear hubby) gets very frustrated, but it all works out in the end. And quarterly. And especially on April 15th. (Oh, how I support the FairTax!)
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