This year, Americans will spend more on taxes than on housing, clothes, and food COMBINED.
In fact, on average, every dollar Americans earn until April 15 will end up going to taxes.
So if a 1099 income makes its way into your mailbox, you’re probably not having a great day. Sorry.
Here’s what you need to know about a 1099-MISC form.
What Is a 1099?
If you got a 1099 form, it means someone paid you money for a job you did, but you’re not an employee of their company. This is usually for subcontractors or freelancers.
If you hired out a subcontractor or freelancer and paid them more than $600, you need to send a 1099-MISC to them. You can generate a form easily with this 1099 generator.
What Do I Do With a 1099?
If you’re filing your taxes with tax software, you’ll be prompted to enter a 1099 form, if applicable. If you have more than one, you’ll be prompted to enter them all.
If you’re filing with a tax company, give them your forms. They know what to do.
If you do not have 1099 forms for all of your income, you need to file a Schedule C of Form 1040, or a Schedule SE, Form 1040.
Will I Have to Pay Taxes?
But it’s also not that simple. Even if you don’t get a 1099, you have to pay taxes on the money you earned. That’s why as a freelancer, you must keep immaculate records of your incomes.
And just because you did work for a client it doesn’t automatically mean they’ll send you a 1099. They legally don’t have to if they paid you less than $600.
So let’s hope you have good records, cause you’re still getting taxed on it. If you made more than $400, you have to pay your taxes, including self-employed income tax.
What is the self-employed income tax? When you’re an employee they contribute to your social security and medicare taxes. Since you’re a subcontractor or freelancer, they don’t have to do that.
As a result, those who are self-employed or freelance should save 25% or 30% of their income just for taxes.
Do You Expect More 1099 Income Next Year? Then Do This
If this is your first year freelancing, or if you started to take off, you may never have filed quarterly taxes.
But if you expect to owe more than $1,000 in taxes next year, you need to start filing quarterly. If you don’t, you may get hit with extra fines, adding insult and burden to injury.
Plan to Pay Taxes on 1099 Income Next Year
Paying taxes on 1099 income isn’t fun, and you can expect your bill to be higher. Next year, to make the burden easier, pay taxes quarterly. Save 25% to 30% of your income all year round to cover the bill when it comes.
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