Nobody enjoys paying taxes. If you’re self-employed you’ll likely have a different relationship to taxes to someone who is in traditional employment. Such people have the benefit of their employers filling out their tax returns for them periodically without them having to give it a thought. Being self-employed has many benefits such as the added freedom it offers. Having to do your taxes, however, is not one of these benefits.
Let’s look at some tips for helping you declare your 1099 income.
What Is A 1099 Form?
1099 is a series of forms on information return, issued by the IRS. You’ll receive some kind of 1099 form (of which there are many types) if you’ve earned some kind of income other than a normal salary from employers or customers. The person or entity that pays you is responsible for sending you the correct 1099 form from January 31 of a given year.
If you are a traditional worker, your employer will report your annual income on a W-2 form. However, if you’re self-employed or an independent contractor you should receive a 1099-NEC (previously MISC) from each business or individual that pays you at least $600 in a given tax year.
Be sure your 1099 misc calculate taxes are correct to avoid any penalties down the line. You are still required to declare all your income even if you don’t receive a 1099 form from your clients.
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Who Pays Income Tax on 1099?
An individual contractor, freelancer, whether a writer, artist consultant, musician, photographer, or anything else, and you hire your services out to individuals, you are required to pay income tax on your earnings. The income you receive should be reported to you on 1099-MISC forms so you can pay income tax on it. Remember you are still required to report your income even if you don’t receive 1099.
1099’s For Interest And Dividends.
If you own a portfolio of stock or mutual funds, you’ll likely receive a 1099-DIV form to claim any dividends or distribution you may have received. These are different from payments you receive directly from selling stock. These are paid in relation to a corporation’s earnings to shareholders.
There are also other types of investments you have that may require you to pay periodic interest. These interest payments are also taxable and are often taken care of by the bank with which you hold the account.
The Bottom Line
Whilst more and more people are reaping the benefits of self-employment and different income streams, you have to make sure that you remain on top of declaring all your taxable income to avoid any undesirable tax audits. Whilst no one likes paying taxes, they are necessary for the smooth running of the state.
Perhaps the biggest downside to self-employment is forgoing the convenience of having your employer responsible for filling out your tax return every year. By knowing when, where, and how you pay, and declare your 1099 income, you can keep on top of your taxes and avoid any undesirable consequences.