Tax-Deductible Items When Filing a 1099
The Internal Revenue Service, or IRS, uses various form 1099s to validate businesses deductions and monitor income reporting for individuals and unincorporated businesses. Since form 1099 informational returns only report income, you, as a taxpayer, are responsible for reporting your deductions where allowable. Understanding the type of income reported on your 1099, in conjunction with your possible deductions, reduces your taxable income.
2014 Income Tax Refund
The Facts
The IRS requires businesses to file 1099 informational returns with your copy postmarked by Jan. 31 and the IRS's copy postmarked by Feb. 28. The 1099 states your income earned for the year. No deductions are included, and a retirement distribution is one of few activities allowing you to withhold income taxes.
There are 13 types of 1099s for various activities. Income for independent contractors and sole proprietors is most common and reports on Form 1099- MISC. You report your 1099-MISC income and tax-deductible items on Schedule C, which attaches to your Form 1040 income tax return.
How to get fast tax refund
Types
Tax deductions for your 1099-MISC include advertising, auto expenses, taxes and licenses, rent, leases, repairs and maintenance, home office, supplies, insurance, meals and entertainment, wages and depreciation. Other less common 1099 forms may have limited deductions. Your basis in the property sold reduces your gross proceeds from 1099-B, 1099-S and 1099-DIV. Cancellation of secured and unsecured debt is excludable from income to the extent that you are insolvent.
Considerations
Always track your income during the year and compare it against the 1099 you receive. An error overstating your income leads to an increase in your tax liability. Track your expenses in the same manner. It will be difficult for you to remember all your expenditures at year-end. Expenses related to your 1099 reportable income are tax deductions. Deductions for 1099-MISC recipients are the same for sole proprietors or single-owner businesses.
Misconceptions
Independent contractors and others receiving a 1099-MISC often believe you pay less tax than an employee will, which is not always true. Independent contractors do not have tax withholding, which leads you to believe you pay less tax. However, receiving a 1099-MISC requires you to pay self-employment tax, or SE tax, which is 13.3 percent in 2012 (employees pay 5.65 percent, while employers pay the other 7.65 percent in an employee/employer working situation). Although you pay more SE tax receiving a 1099, you also get additional deductions.
Federal Tax 1040EZ
Expert Insight
You can deduct more expenses than your income for the year, resulting in a loss on your tax return. Losses from 1099 income can result in a net operating loss, carried back and forward, to reduce prior and future tax liabilities. Consequently, do not stop gathering and stating deductions just because you have eliminated your income and tax liability; there may be additional tax benefits for your losses. For additional questions about your specific situation, contact your local enrolled agent or other tax specialist.
The Internal Revenue Service, or IRS, uses various form 1099s to validate businesses deductions and monitor income reporting for individuals and unincorporated businesses. Since form 1099 informational returns only report income, you, as a taxpayer, are responsible for reporting your deductions where allowable. Understanding the type of income reported on your 1099, in conjunction with your possible deductions, reduces your taxable income.
2014 Income Tax Refund
The Facts
The IRS requires businesses to file 1099 informational returns with your copy postmarked by Jan. 31 and the IRS's copy postmarked by Feb. 28. The 1099 states your income earned for the year. No deductions are included, and a retirement distribution is one of few activities allowing you to withhold income taxes.
There are 13 types of 1099s for various activities. Income for independent contractors and sole proprietors is most common and reports on Form 1099- MISC. You report your 1099-MISC income and tax-deductible items on Schedule C, which attaches to your Form 1040 income tax return.
How to get fast tax refund
Types
Tax deductions for your 1099-MISC include advertising, auto expenses, taxes and licenses, rent, leases, repairs and maintenance, home office, supplies, insurance, meals and entertainment, wages and depreciation. Other less common 1099 forms may have limited deductions. Your basis in the property sold reduces your gross proceeds from 1099-B, 1099-S and 1099-DIV. Cancellation of secured and unsecured debt is excludable from income to the extent that you are insolvent.
Considerations
Always track your income during the year and compare it against the 1099 you receive. An error overstating your income leads to an increase in your tax liability. Track your expenses in the same manner. It will be difficult for you to remember all your expenditures at year-end. Expenses related to your 1099 reportable income are tax deductions. Deductions for 1099-MISC recipients are the same for sole proprietors or single-owner businesses.
Misconceptions
Independent contractors and others receiving a 1099-MISC often believe you pay less tax than an employee will, which is not always true. Independent contractors do not have tax withholding, which leads you to believe you pay less tax. However, receiving a 1099-MISC requires you to pay self-employment tax, or SE tax, which is 13.3 percent in 2012 (employees pay 5.65 percent, while employers pay the other 7.65 percent in an employee/employer working situation). Although you pay more SE tax receiving a 1099, you also get additional deductions.
Federal Tax 1040EZ
Expert Insight
You can deduct more expenses than your income for the year, resulting in a loss on your tax return. Losses from 1099 income can result in a net operating loss, carried back and forward, to reduce prior and future tax liabilities. Consequently, do not stop gathering and stating deductions just because you have eliminated your income and tax liability; there may be additional tax benefits for your losses. For additional questions about your specific situation, contact your local enrolled agent or other tax specialist.