Another day, another mysterious tax form in your mailbox. This one says it’s for “Miscellaneous Income” and it’s from one of your clients. Actually, as you look through the rest of your mail, you see a handful of these 1099-MISC forms. What gives? What are these?
If you’re new to contracting, the many new forms you have to deal with can be confusing. Every day there seems to be some new tax thing you have to take care of, whereas before when you had a 9-to-5 most of the work was done for you.
Well fear not, as we’re here to clear up the 1099-MISC for you. You’ll be happy to hear it’s one of the simpler forms you’ll deal with as a freelancer.
What Is It?
When you worked for your 9-to-5 job, your employer did a lot of the heavy tax lifting for you. After you submitted your initial tax information, they took out a certain amount each pay period and turned it into the government agencies that wanted it. You got the rest to pay bills and go out to eat and such.
During tax time, you would get a W-2, which had how much you made from the company as well as how much was taken out for taxes. You entered this on your tax forms and that was pretty much it unless you had deductions, credits and other alterations.
This is not how it works as a freelancer. When you complete a job, you charge a flat fee and the client doesn’t take any taxes out at all. You’re responsible for sending in your taxes to the IRS and your state’s taxing authority. You pay this money in quarterly payments called quarterly estimated taxes. Because of this tax difference you receive a different tax form during tax time – not the W-2, but the 1099-MISC.
So what’s on it? Basically, how much money you made through that one client. That’s why you likely have multiple 1099-MISCs in your mailbox; each client sends their own form with their own totals on it. So if you did a job for Business X, Business Y, and Business Z, you’ll expect three 1099-MISCs with their own unique info on them.
What To Do With Them?
So now that you have these forms and you know what they are, what do you do with them? First, it would be a good idea to go over them and make sure the information on them is correct, as any discrepancies could cause big trouble for you.
Hopefully the amounts add up to the amount of income you have in your own books. You will enter all of your income from self-employment on line 1 of the Schedule C, which goes along with your 1040 income tax form.
After you’ve added the information, that’s pretty much it for the forms. However, don’t just toss them! Make sure to hold on to these forms for a few years in case anything ever comes up. Also, knowing how much you made in the previous year could be very useful for figuring out your quarterly estimated tax payments.
How many 1099-MISC forms did you pull in this year? Did the amounts on these forms agree with your own bookkeeping?
About the Author:
This post is brought to you by GoDaddy Online Bookkeeping (formerly Outright) the simplest way to manage your small business finances online. Sign up today for a less taxing tax time!