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When you receive a 1099-MISC it typically means you work for yourself, as an independent contractor, or own your own business. Here are 6 key points you should know about self-employment and self-employment taxes. Pay special attention to #5 as it will save you money!
1. Self-employment income can include pay that you receive for part-time work you do out of your home. This could include income you earn in addition to your regular job.
2. Self-employed individuals file a Schedule C, Profit or Loss from Business to figure/report their net business earnings.
3. If you're self-employed, you generally have to pay self-employment tax as well as federal & state income tax. Self-employment tax includes Social Security and Medicare taxes. This tax is usually 15.3% of your net self-employment income.
4. If you're self-employed you may have to make estimated tax payments on a quarterly basis. Click here to learn more about estimated tax payments.
5. When you file your tax return, you can deduct some business expenses for the costs you paid to run your trade or business. You can deduct most business expenses in full, but some costs must be ’capitalized.’ This means you can deduct a portion of the expense each year over a period of years. These expense deductions reduce the amount of taxes due.
6. You may deduct only the costs that are both ordinary and necessary for your business. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. Here's a more thorough explanation about business expenses - click here.
Please contact us with any questions on how to handle business income and reduce your taxes.