Steer. Sure, we will hear your collective moans from right here.
Let’s face it — only a few freelancers sit up for tax time. With a lot numbers, documentation, and a seemingly unending avalanche of paperwork, it is positively sufficient to offer us all a headache.
It is at all times clever to get in contact with an expert who will help you navigate these murky taxing waters. Nonetheless, doing a little homework and gathering some information for your self can be an enormous profit (plus, it saves you the embarrassment of being utterly out of line whenever you lastly sit down together with your CPA!).
First, let’s deal with one thing primary: the 1099 kind. As a freelancer, you’ll get a number of these. Subsequently, it is necessary that you just perceive their objective and know how you can use them correctly.

What’s a 1099 kind?

You most likely already know this kind. However should you’ve ever questioned what precisely a Type 1099 is — with out being deeply confused by all of the authorized mumbo-jumbo — let’s simply break it down:
When you maintain a standard job, your employer offers you a W-2. This manner consists of your payroll data and the quantity you paid all year long in state, federal, and different taxes withheld straight out of your paycheck. The IRS requires that this data be reported by employers.
However after all, as a freelancer, you do not simply have one employer reporting in your revenue and taxes paid. That is the place Type 1099 is available in.
This manner (there are literally many differing kinds – extra on that later!) is used to report different sorts of revenue, whether or not it is curiosity from a checking account or – you guessed it – cash earned out of your freelance and consulting work.
“Type 1099s are a instrument that the IRS makes use of to estimate whole income paid to companies,” explains Rebecca Norris, CPA, in a submit on the JPMS Cox Accountant and Advisor weblog: “You may assist the IRS be certain that enterprise homeowners don’t understate their revenue for revenue tax functions. Submitting a 1099 additionally supplies proof of bills which might be deducted on the applicant’s tax returns.”
Learn extra: What’s a 1099 kind?

What that you must learn about 1099 varieties

Okay, now that that these varieties truly serve an vital objective (and are not simply one other merciless approach for the IRS to make your life that a lot tougher), what else do that you must learn about them?
Let’s go over a number of issues that you must positively pay attention to when coping with your 1099 varieties.

1. You want them to submit correctly
We’ll begin with the obvious level first: you may want these varieties when submitting your taxes. Any buyer who paid you greater than $600 all year long owes you a 1099 so you possibly can correctly report the revenue and pay taxes on it. And contemplate this your truthful warning: whereas clients beneath that $600 threshold do not need to file a 1099, they nonetheless have an obligation to report the revenue (we all know – life is not truthful).
Companies should ship these varieties by January thirty first for the earlier calendar 12 months, which means you must have them utterly in your fingers by early February on the newest. Sadly, many firms are nonetheless sending them too late – regardless of the penalties they face for doing so.
So what occurs in case your buyer does not ship you any in any respect? You could be tempted to achieve out and request one. Nonetheless, many consultants warn towards this tactic.
“If you do not get the Type 1099 you are anticipating, do not ask for it,” warns Robert Wooden his article for Forbes“When you name or write to the payer and lift the problem, it’s possible you’ll get two of those, one via the conventional route (even when it by no means reached you) and one issued since you known as.”
This will solely add an entire further layer of confusion to issues. As a substitute, you must merely plan to report the revenue anyway — no matter whether or not you will have a 1099 as a reference or not.

2. You need to report all earnings to keep away from a headache (even with out 1099)
That brings us straight to our subsequent level. You’ll want to embrace your entire revenue. Sure, even when it prices lower than $600 and also you did not obtain a 1099 kind from that buyer.
Why? Properly, as a result of that cash continues to be taxable revenue that the IRS must learn about. And greater than that, it’s the moral factor to behave as a freelancer. Remember that the purchasers who paid you over $600 all 12 months can discover themselves in scorching water if it seems they did not give you a 1099 — and you do not need to with them land on this boiling boat.
So when doubtful, report each penny you earn. Sure, having much more taxes taken out of your hard-earned paycheck can damage. However ultimately, this sincere method will prevent much more complications than it causes.

3. You need to request to repair 1099 errors
You begin getting your 1099 varieties within the mail, and as a substitute of opening them immediately, you toss all of them in a pile within the nook of your desk to work on later. Whereas we admire your considerably organized approach of conserving these all collectively, it could be higher should you took a couple of minutes to evaluation every doc as you acquired it to ensure it was error-free.
Imagine it or not, your clients aren’t excellent—they’ll make errors right here and there, too. And also you’d quite discover out that your final identify is misspelled or your deal with is mistaken now (when you’ve got time to right it!) than the evening earlier than it’s a must to file the whole lot.
And sure, you must positively ask your buyer to repair any errors in your 1099 kind. If the shopper hasn’t already submitted the shape to the IRS, they need to have the ability to make the change, destroy the inaccurate kind, after which submit the proper one.
Nonetheless, if the shopper has already submitted the inaccurate kind, they might want to undergo the corrective steps with the IRS – which normally entails the straightforward step of making ready a brand new kind and checking the field marked ” CORRECT “.

4. Your social safety quantity holds the important thing
Whereas the above is undoubtedly vital and you must make it your objective to ensure all the data in your 1099 kind is correct, bear in mind this: It is all tied to your social safety quantity, making this essentially the most vital a part of data on these varieties (so, sure, quadruple-check that on each single kind you obtain!).
“Your identify and deal with are vital, however Type 1099s are actually managed by your social safety quantity,” explains Robert Wooden in a separate article he wrote for Forbes“Even when an issuer has yours previous deal withthe data will likely be reported to the IRS (and your state tax company) primarily based in your social safety quantity.”
So the underside line? Ensure that these digits are right. You’re vital!

5. You need to have the proper kind kind
Do you know that there’s a wide selection in terms of 1099 varieties? That is proper – there’s an entire vary to select from.
However do not begin respiratory right into a paper bag and considering that now it’s a must to sift via much more impossible-to-read necessities to determine which actual kind you are speculated to obtain. We make it straightforward for you: Freelancers ought to get hold of a 1099-MISC kind from shoppers, which is used to report numerous sorts of revenue.
Different 1099 varieties These embrace 1099-C, which is used to report debt aid, and even 1099-S, which particulars funds from actual property transactions — amongst many, many different sorts of 1099 varieties. However as a freelancer, all it’s a must to fear about is 1099-MISC.
If a shopper someway will get confused and sends you a special type of 1099? You’ll want to ask for this to be corrected.

Pack 1099s

Let’s face it – no freelancer will ever break their merry dance on the thought or the point out Steer. The method is exhausting at finest (sure, pun very a lot meant).
With seemingly limitless confusion, paperwork, and painful quarterly funds (btw now we have one helpful quarterly tax calculator bot to assist with that!), managing your taxes as a freelancer is sufficient to encourage you to only lay in your desk till all of it magically disappears.
However as , that is not precisely the neatest tactic. As a substitute, it is best to teach your self, keep organized, and sort out your taxes head-on.
And when doubtful, do not hesitate to enlist the assistance of a tax professional to information you thru the matter. Sure, it’s going to require a bit cash out of your pocket. However the blood, sweat and tears it saves you can be greater than price it. Apart from, the perfect? The prices for this appointment are tax deductible for you! We name this a contract win.