If I Received a 1099, Which Tax Forms Do I Need to Fill Out?
While there are other types of 1099 forms, one commonly used is the 1099 MISC. If you work as a freelancer or contractor, meaning that you receive compensation from a company of which you are not an employee, your compensation is reported on a 1099 MISC.
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Definition
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A 1099 MISC form serves as a record of income received throughout the year for freelance or contract work. The same form can also be used to report real estate income and royalties for a property you own or a work you created. Since the contracting company is not responsible for withholding, unlike a W-2, the 1099 MISC reports only your gross income, with no withholding. As of 2010, according to the IRS, if you earned at least $600 as a freelancer or contractor, you'll need to pay taxes on your earnings. This is usually reported on box 7 of your 1099. Income for real estate, royalties and work you created will be reported in boxes 1 or 2.
Filing Forms
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Like any individual earning income throughout the year, you will need to file a form 1040. Additionally, you will need to complete a Schedule C and a Schedule SE. The Schedule C is used to report all gross receipts, or everything you earned from your freelance work, along with your deductible expenses. You then subtract expenses from the total receipts in this form to get a net profit or net loss. Schedule SE is used to figure out how much self-employment taxes are owed.
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Exception
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If you are receiving payments from the Social Security Administration or are on Medicare while also working as a freelancer, and no Social Security or Medicare payments were withheld from your income, you must use Form 1040-ES, notes the IRS. This form replaces Form 1040 for your taxes. You will still, however, need to complete the Schedule C and Schedule SE.
Effects
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If you got a 1099 MISC in the mail, and you don't have another job through which taxes were withheld and you made no advance payment on your freelance income, you will owe all those taxes at the end of the year. If you did receive a paycheck from which taxes were withheld, that withholding amount will be applied against any taxes you owe on your 1099 income. In that case you could still owe money, break even or qualify for a tax refund.
Solutions
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You can reduce what you owe at the end of the year by making advance payments to the IRS. Use the amount you owed this year for your freelance work to determine how much taxes you should pay over the coming year. You will have to make payments quarterly. Failing to make these quarterly payments may result in taxes and penalties, plus interest, depending on how much is owed to the IRS at the end of the year, notes TurboTax. Payments are due to the IRS on April 15, June 15, September 15 and January 15.
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References
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