How To Calculate Tax On 1099-MISC Income?
An undeniable fact of life? Paying taxes! We've all been there, and there's just no way to avoid it. If you're a self-employed individual, it's your prerogative to ensure your credit responsibilities are in-check. As a 1099-MISC income earner, you'll be required to show proof of income for loans, insurance purposes, and not-to-mention, U.S. taxation laws.
If you're a freelancer, the taxes you pay contribute toward Social Security and Medicare, just as any other taxable U.S. citizen. Did you receive a 1099-MISC form in the mail this year? Here's all you need to know about completing your 1099-MISC tax return.
Also read: Who Is Classified As 1099 Employee?
What is a 1099-MISC Form?
All self-employed individuals or 1099-MISC income earners are required to pay tax every quarter to the IRS. Each January, you should receive a 1099 MISC form in the mail from each company you did work for in the previous year. If you worked for more than one organization in a year, you can expect multiple 1099 MISC forms.
Each form will reflect an amount in Box 7. This should be the total amount you were remunerated by an employer, meaning you need to pay tax on this amount. Remember, it is your responsibility to stay on top of your credit responsibilities if you fall in the 1099-MISC income bracket. If you earned more than $3,000 in a year, you will need to pay tax on this amount.
Also read: The Difference Between Forms 1009 and W2?
The company (or companies) you worked for throughout the year will total your earnings on each 1099 MISC form. Throughout the year, you should collect and track your earnings, either in the form of paystubs or invoices from employers.
To lower the amount of tax you pay, track your business expenses and hold onto receipts where you can. It's vital that you enter your business expenditures onto your 1099 MISC form to calculate your exact taxable income.
How to Calculate Tax on a 1099-MISC Income
If you're new to receiving a 1099 income, you might not be too familiar with the ins and outs of the 1099 form. Let's break the navigation down.
Total the income amounts on each 1099 MISC form. If you have more than one form, combine the total income from all of your forms.
Total all your business expenditures which you have kept track of and subtract that from your total income. This will bring you to your net income.
Multiply your net income amount by 0.9235 to calculate your taxable income.
Check the IRS tax table for the amount of tax you owe for your taxable income. Remember that tax schedules vary from state to state.
How to File a 1099 Form
To file your 1099 MISC form, you will need the following supporting documents, available from the IRS:
- Schedule C: This is where you'll record your business expenses and calculate the profit you have generated.
- 1040-ES: This is a simple worksheet used to calculate your quarterly taxes.
- Schedule SE: This document tallies the Social Security and Medicare tax contributions you owe.
You can submit your 1099 MISC form electronically. Payment must be made by 8 p.m. Eastern Time before January 31st.
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