Last week when I was teaching yoga, a student of mine came up to tell me that he has been enjoying my Chika’s Tax Tips content and that he has personally been struggling with managing his taxes as an entrepreneur.
When I asked him what his issue is, he told me he had been overwhelmed with 1099 forms and that he had no idea what to do with them. Specifically speaking, he was referring to the 1099-MISC where self-employed income is reported.
This stunned me. 1099s are not supposed to be confusing. In fact, if you’re an independent contractor or businesswoman, 1099’s make the world go round; contract workers receive 1099s from the contractee who also reports the 1099s to the IRS.
According to the IRS, the 1099-MISC, records income you received as an independent contractor or for some other source of income.
If you’re a freelancing or own your own business, you’ll likely receive several 1099s from your clients. 1099s give you the freedom to work as you choose in a mutually beneficial relationship. Business owners can pay their independent contractors without worrying about payroll taxes and freelancers can expect to get compensated for the hours and schedule that works for them.
The main difference between 1099 and W2’s is — and if you’ve been following Chika’s Tax Tips since the beginning, you already know this — that the former does not withhold taxes. As a result, your 1099 form won’t show the taxes you’ve already paid to the government—just your income from each client.
As a freelancer, you’re responsible for estimating your taxes and paying the self-employment tax.
Instead of withholding taxes with each paycheck, you’ll make tax payments quarterly based on your estimated annual tax liability. Sorry folks, there’s really no secret behind it. With every received 1099-MISC comes the reporting of self-employment income. Making quarterly estimated tax payments lessens the tax blow come tax filing time. Not only that but its an IRS requirement.
For more, check out general information on Form 1099 from the IRS.
My #ChikaTaxTip: There’s no reason to be intimidated nor nothing to be afraid of the 1099-MISC– that’s if you stay on top of paying your quarterly estimated taxes. I’m curious, do you pay your estimated taxes each quarter? Go ahead and hit reply to tell me.
With Love,
Chika
PS: Looking for more ways to save money on taxes and fine-tune your business? Join the Chika’s Tax Tips Facebook community where us boss ladies connect so we can succeed together.
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