1099 earners are typically considered independent contractors or self-employed. If you fall under this category, this means that you work for yourself and have to abide by certain IRS guidelines in order to stay compliant with the IRS. Being self-employed means that you have certain responsibilities; you must keep track of all expenses you’ve been making throughout the year, make quarterly tax payments to the IRS and look into what deductions you qualify for as a 1099 earner. Below are a few tips to get you started on what you need to do as an independent contractor.

What is the difference between 1099 and W2?

If taxes are being deducted from each of your paychecks, you are a W2 earner. Every year W2 earners receive a tax form that shows their total wages from the year and the amount of taxes that were withheld from their wages

1099 earners are self-employed and do not have any taxes withheld from their total income. The total amount of pay you received from any person or entity for whom you were a 1099 earner for during the year will be reported on a 1099 form. An independent contractor is then responsible for making estimated tax payments.

Keep a record of your expenses.

Working as an independent contractor means that you could take expenses against your income that are considered ordinary and necessary to the work performed. Make sure to keep a filing system to store any receipts for work-related costs such as equipment and supplies. If you travel for work, always keep track of any mileage, gas, and car maintenance receipts you may have. It’s important to keep in mind that you should only include vehicle expenses that are work-related only. If you’re staying in a hotel and lodging as well as having meal expenses, make sure to keep the receipts for this also as it can potentially be a write-off.

Make estimated tax payments.

Unlike a W2 earner where taxes are directly deducted from your bank account, independent contractors must make estimated tax payments to the IRS since they are not subject to withholding. 1099 earners have the ability to pay their taxes throughout the year anytime, but it is typically done either monthly or quarterly. Should a taxpayer fail to make estimated tax payments throughout the year and end up owing after filing, they will be subject to penalties on top of the tax balance they do owe.

There are many benefits of being self-employed such as tax advantages. It is important to understand what responsibilities with the IRS you have as a 1099 earner. Taxpayers must first understand the difference between a W2 earner and being self-employed, ensuring that you keep receipts for business-related expenses and making estimated tax payments throughout the year to avoid owing a tax balance. If you want to learn more about being a 1099 earner you can visit the IRS’s website.

 

The content contained on this page is strictly for informational purposes and may not apply to your specific situation. We recommend you consult with a tax professional to evaluate your unique situation. Forward Tax does not provide tax, bankruptcy, accounting or legal advice.

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