Working for yourself definitely has its perks, but it also comes with its own challenges—especially when tax season comes around. One of those challenges is figuring out what to do with those 1099 tax forms that start coming in from all those clients who paid you for a job well done.

Don’t worry, we’ll walk you through what a 1099 tax form is, why you got one (or ten), and what you’re supposed to do with them.

What Is a 1099-MISC Form?

The 1099-MISC tax form is most commonly used to help freelancers and independent contractors report income they earned from different sources throughout the year to the IRS. Basically, Uncle Sam wants to make sure all that hard-earned money is on the grid.

But the money you make with your side hustle isn’t the only type of income that you can report with the 1099-MISC. In reality, the 1099-MISC form is the catch-all for most of the miscellaneous income (that’s what the “MISC” in 1099-MISC stands for) you earned outside of traditional employment.

A 1099-MISC form can also be used to report several types of payments, including the following:

• Rents. If you own property that is rented to a business, you will probably receive a 1099-MISC that includes the amount of rent paid to you. (If you rent residential property, you probably won’t receive a 1099-MISC.)

• Royalties. These are payments made to you for the use of property that you own, from oil and mineral properties to copyrights and patents.

• Other Income. Did you win that sweepstakes for an all-inclusive cruise vacation? While you’re sipping piña coladas in the Bahamas, remember that you’re required to pay taxes on any “prizes and awards” worth more than $600. “Other income” also includes things like damages and juror’s compensation.

• Medical and health care payments. If a business makes payments of $600 or more to physicians and other health providers for medical services, they’re required to send out a 1099-MISC.

• Payments to an attorney. Lawyers also get a 1099-MISC when they get paid $600 or more by a business for their services. ²

There are several other types of miscellaneous income the 1099-MISC is used to report, including substitute payments to brokers that take the place of stock dividends and fishing boat or crop insurance profits, but for most folks those boxes will remain blank on the form.

The 1099 will also have the name, address and tax identification number of the business or client who paid you and your name, address and Social Security number. When you receive the form, the type and amount of payments you received from the business you freelanced for will already be filled out.

What’s the Difference Between a 1099-MISC Form and a W-2 Form?

Both the 1099-MISC and W-2 forms basically serve the same purpose, which is to report your income to the IRS. But the difference is that W-2 forms go out to employees while 1099s are sent to non-employees, including freelancers and contract workers. And it’s very possible you’ll have to file both forms during tax season!

For example, let’s say you’re a full-time teacher at a local middle school, but you also freelance as a photographer on nights, weekends and throughout the summer months.

Both the 1099-MISC and W-2 forms basically serve the same purpose, which is to report your income to the IRS. But the difference is that W-2 forms go out to employees while 1099s are sent to non-employees, including freelancers and contract workers.

As an employee at the middle school, you’ll get a W-2 form. But as a freelancer, you’ll probably receive a 1099-MISC form from each of the businesses or clients you took photos for throughout the year.

Remember, taxes have usually been taken out of your W-2 income, but not your 1099 income. If you’re juggling a bunch of tax forms and not sure where to start, it’s probably a good idea to connect with a tax pro who can sit down with you and help you understand your tax situation.

Who Gets a 1099-MISC Form?

If you received $600 or more in payments from a particular business or client,  they are required to send you a 1099-MISC form by January 31, as well as a copy to the IRS by the end of February. So, if five companies paid you more than $600 last year, you should be getting five 1099 forms—one from each company.

If that January 31 deadline comes and goes and you still haven’t gotten your 1099 form, you should reach out to that company or client to get that straightened out.

But if you were paid through PayPal, a credit card or some other online payment system, you might get a 1099-K form from your clients instead. The 1099-K is a tax form that shows all the payments you received through a third-party transaction network. Businesses don’t need to send you a 1099-K unless they paid you more than $20,000 or more than 200 times during the year—so you might not receive a tax form from them at all.

So, if you didn’t get a 1099-MISC or 1099-K from a client you worked for, does that mean you don’t have to report that income? Not so fast! Even if you earned, say, $400 for some freelance work and don’t receive a 1099-MISC or 1099-K form from the company you freelanced for, you’re still required to report that income and pay your taxes on it to the IRS.

What to Do When You Receive a 1099 Form

OK, so you’ve gathered all the 1099 forms from all the clients you did business with last year . . . now what? Here’s a step-by-step look at how to use your 1099 forms to file your taxes.

Step 1: Report all your 1099 income and expenses on a Schedule C.

Since you’ve earned self-employed income, you have to fill out a Schedule C to report income or loss from your freelance or contract work, and then you’ll attach it to your tax return.

First, you’ll add up all the self-employed income you earned throughout the year, including all the money earned and reported on your 1099 forms. You’ll also add in the money you earned that’s not on any 1099 forms, like money from odd jobs, babysitting, etc.

Second, you’ll add up all the expenses you took on while working your side hustle—from advertising on Facebook to the money you spent on gas driving between jobs—that you can claim as tax deductions. That’s one of the advantages of earning self-employed income: You can take advantage of a handful of tax deductions that regular employees can’t.

Finally, subtract your total expenses from your gross income to get your net profit (or loss). You’ll need that net profit/loss number for the next step, which is . . .

Step 2: Calculate your Social Security and Medicare taxes on a Schedule SE.

Most employees have their Social Security and Medicare taxes withheld from their paychecks, so those taxes are mostly out of sight, out of mind. But if you’re a freelancer, you don’t have that luxury.

Here’s what you need to know about the self-employment tax:

• The self-employment tax is 15.3% of the money you made working for yourself and covers Social Security and Medicare taxes.³

• If your net profit (what you calculated in your Schedule C) is more than $400 from your small business or freelance work, then you have to pay the self-employment tax.

• If your net profit is less than $400—or you had a net loss for the year—then you don’t owe any self-employment tax.

• The self-employment tax is supposed to cover the employer and employee portion of your Social Security and Medicare taxes. The good news is that the employer half of the tax (7.65%) is deductible!

Are all these numbers making your head feel all fuzzy? The Schedule SE form will help you calculate your self-employment tax, but you can estimate how much you’ll owe in self-employment tax with this basic formula:

(Net Profit x 92.35%) x 15.3% = Self-Employment Tax Owed

Let’s say you made $3,000 last year selling home-baked cookies and you deduct $1,000 worth of expenses—that means your net profit is $2,000.

First, you would apply the self-employment tax deduction by multiplying $2,000 by 92.35% (that’s the employer-portion deduction we just talked about). That gives us $1,847 in taxable self-employment income—the amount that is subject to the self-employment tax.

Then, you would multiply $1,847 by 15.3% and—presto!—you get $283, which is how much you owe in self-employment tax for the year.

Step 3: Work with a tax pro to file your taxes.

Now all that’s left to do is file your tax return, report your income, and pay your taxes. The big question is whether to do it yourself with an online software program or turn to a tax pro for help.

If you’re swimming in 1099 forms from multiple freelancing jobs in addition to having a W-2 job, that means your tax situation may already be more complicated than most—and working with a tax pro might be your best option. According to the IRS, more than 80 million tax returns were filed with help from a tax professional last year, so you’re in good company.⁴

The pressure to get everything right so the IRS doesn’t come knocking on your door is real. Working with a tax pro who will help you get your taxes done right can take the stress out of the process, making Tax Day just another chance to enjoy the lovely spring weather!

Find your tax pro today!

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach