Did you know that whether you’re an employee or an independent contractor, you pay for Medicare and Social Security through taxes? As an employee, you pay for it before you get your check. As an independent contractor, you pay for it after you receive all your revenue. This makes 1099 taxes more overwhelming than W-2 taxes.
Let’s get into how 1099 taxes work, so you can file your taxes with confidence and keep your money away from the IRS. To help you maximize your tax savings immediately, we put together a simple checklist of 25 business expenses that you can deduct right away.
Once you grab your guide, your first line of defense begins before you ever collect a check. It starts with Form W-9.
The Overlooked W-9 Form
Before you do work for another business, you’ll need to fill out Form W-9.
This form tells the client your official business name and your Taxpayer Identification Number, which can be your Social Security Number or an Employer Identification Number.
If you make a mistake on this form, the IRS will force your client to start backup withholding.
Backup withholding means the client is legally mandated to instantly take out a flat 24% of your checks and send it directly to the IRS.
Always make sure your W-9 matches exactly what the Social Security Administration or the IRS has on file. If the government flags you for past underreporting or missed deadlines, they can mandate this penalty on your checks until you fix the issue.
Common 1099 Forms Breakdown
As an employee, your income is reported to you on a W-2. As an independent contractor, your income is reported to you on a 1099, or several 1099s.
- Form 1099-NEC tracks non-employee compensation. If a client paid you over $600 for your services, they must send this form to you and the government.
- Form 1099-MISC is now reserved for miscellaneous items like rent payments, royalties, or prizes.
- Form 1099-K tracks credit card transactions and payments from third-party networks like PayPal, Venmo, or Uber.
Every one of these forms is just a different lens the IRS uses to cross-reference your revenue. If your return does not match their database exactly, your file gets flagged automatically.
Now that you have your 1099 forms, it’s time to use them to file your taxes.
Schedule C vs. Corporate Returns
How your taxes are prepared and filed depends entirely on your business structure.
Schedule C
If you operate as a sole proprietor or a single-member LLC, your business does not file a separate tax return. Instead, your business profit-and-loss statement flows directly onto Schedule C. This form attaches directly to your personal Form 1040, and that all gets filed as one tax return.
Corporate Returns
If your business grows and you elect to file as a Partnership or an S-Corporation, these entities require completely separate tax returns.
- Partnerships file Form 1065.
- S-Corporations file Form 1120-S.
These corporate returns calculate the business net income separately from your personal life. The business then issues you a Form K-1. This form tells the IRS your specific share of the profits, which you then report on your personal return.
Filing a separate corporate return takes more work, but it unlocks massive defensive strategies. It allows you to split your income between a regular salary and business distributions, which can legally shield a massive portion of your income from the 15.3% self-employment tax.
How Quarterly Estimated Payments Work
The United States operates on a pay-as-you-go tax system. The IRS wants its money, even before you file or know how much you might owe. They’re great like that.
If you expect to owe more than $1,000 in federal taxes for the year, you must make quarterly estimated tax payments. Funny enough, they aren’t actually due each fiscal quarter. These payments are due four times a year, generally on the 15th of each of the following months: April, June, September, and January.
Maximize Your Tax Savings
As an independent contractor, you operate as a business. Use your business to lower your taxable income through deductions. The most overlooked deductions are simply your business expenses. Most strategies available to a business are available to you. Use them so you don’t end up overpaying the IRS again.
We put together a simple, clear guide listing 25 legitimate business expenses independent contractors routinely miss. Keep more of your money in your pocket, where it belongs. Get your copy of the 25 Business Expense Deductions today.