A tax form called the IRS Form 1099 lists any non-salary income that a person has received. The form is designed for independent contractors with a side business and like other tax forms, follows the IRS 1099 due date. Any payee, except corporations, who receives at least USD $600 in non-employment income during a tax year must receive a 1099 from the business and pay taxes on their taxable income. Let’s first discuss the 1099 variation that relates to independent contractors before moving on to 1099 deductions.
Everything you should know about Form 1099-NEC
For freelancers and independent contractors who get money from clients who are not their employers, the 1099-NEC (Non-employee Compensation) form is designed. If a company paid a non-employee USD 600 or more in a tax year to provide some service, the form needs to be submitted. The possibility of fees, benefits, commissions, and royalties falling under the category of non-employee income should not be overlooked. The same is true for self-employed taxpayers, such as independent contractors, who make less than USD 600 a year but are nevertheless required to record all income when paying their taxes.
DEFINITION OF THE 1099 AND W-2 DIFFERENCE
The IRS classifies any self-employed person who works as a freelancer or independent contractor as a 1099 employee. On the other hand, W-2 employees have their taxes taken out of their paychecks. However, 1099 workers are in charge of figuring out their state and federal income tax liabilities, much like a small business.
SELF-EMPLOYEE TAX DEDUCTIONS: THE BEST FIVE
A 1099 employee, usually referred to as a self-employed person, may use a number of 1099 deductions to lessen their tax obligations. Without further ado, let’s look at some of the beneficial deductions that an American contractor or freelancer might take advantage of. Self-employment Tax: If you are a 1099 employee, you must deduct your self-employment tax at a rate of 15.3 percent.
Home office costs – Independent contractors can write off the costs of maintaining a house office or small business by listing the price of utilities, home maintenance, and repair costs. It is also feasible to deduct a portion of your property taxes and mortgage interest. It is important to note that the deduction for home offices is based on the space’s square footage. Therefore, it is crucial to carefully construct the workplace dimensions in the event of an audit.
Health Insurance Premiums and Medical Expenses – Health insurance premiums and medical expenses make up one of the biggest 1099 deductions. Personal deductions that apply to independent contractors include those for health insurance for the health insurance deduction. Internet and phone bills – A contractor or freelancer who uses their phone or internet for business purposes may be able to deduct such costs. Therefore, owning a cellphone specifically for work will make calculations easier and enable hassle-free deductions.
Vehicle Use: A contractor or freelancer can deduct the cost of an automobile for business use using either the actual expense deduction method or the business mileage deduction.
Here are the top five 1099 deductions that independent contractors and freelancers can take advantage of during the upcoming tax season. Although these are the top five, they are not the end. You can also take advantage of deductions when you travel for business. Things like lodging and transport tickets are included as travel expenses. Plus, you can use some tools to help with your tax needs, like a 1099 tax calculator.