Either self employed or working as an independent contractor for the past few years, then rest assure to receive a 1099-MISC tax form. As a matter of fact, the IRS refer this as non employee compensation. If for example that your clients are paying you above 600 dollars, then they should be issuing you a 1099-MISC form. As being self employed, you have to report yourself to the employment income if the amount you get from all sources have totaled to 400 dollars or maybe more.
In relation to this, the process of filing and calculating tax on 1099-MISC tax is going to be different in comparison to taxpayers who receive regular employment income that’s reported on W-2. But being able to file tax on 1099-MISC comes with several benefits and these include but not limited to:
Taking deductions – one of the greatest things when it comes to receiving 1099-MISC compared to a w-2 is the fact that you are able to claim deduction as per your Schedule C. You can use this in order to calculate tax on 1099-MISC and have the chance to learn about your net profit as a self-employed individual. The deductions should be for business expenses and the IRS will consider ordinary as well as necessary for your activities being a self-employed.
Expense is ordinary if it’s incurred by self-employed worker in similar field – expense is necessary if it’s help to you to complete your job. For your expenses to become necessary, it doesn’t actually have to be essential. As an example, the purchasing cost of high end and sophisticated computer software is necessary expense for freelance graphic designers. The cost of getting a limousine service to go to your clients on the other hand may be useful but it is not ordinary by tax standards.
You can also file shorter Schedule C-EZ if for example that your business rakes expenses of 5000 dollars or less. It doesn’t matter if you’re making use of Schedule C or C-EZ because at the end of the day, you have to calculate tax on 1099-MISC and then, subtract all deductible business expenses that you have incurred. Then, your final net profit should be transferred to a Form 1040 and have it combined with other earnings in order to figure out your taxable income.
Given that you’re a self-employed person, you should pay Medicare and Social Security taxes. On the other hand, because your 1099-MISC income tax isn’t subject to self-employment tax withholding, you have to calculate and pay such taxes yourself. Only the net profit reported on Schedule C is calculated to self employment taxes on Schedule SE.