How to Calculate Tax on 1099-MISC?
One reason why you get a 1099-MISC tax form is if you are working as an independent contractor on the past year or if you are self employed. As a matter of fact, the IRS refer this as non employee compensation. In most cases, your clients have to issue 1099-MISC form when they’re paying you 600 dollars or maybe more in a year. As being a self employed individual, you’re required to report yourself to employment income if for example the amount you get from all your sources totaled to 400 dollars or maybe more.
In regards to this matter, the process of filing and calculating tax on 1099-MISC tax will be a bit different compared to those taxpayers who are receiving regular employment income that is reported on W-2. But filing tax on 1099-MISC has a number of benefit and some of these are discussed in the next lines.
Taking deductions – depending on your Schedule C, you can claim your deductions that comes to your 1099-MISC than a w-2. You can use this in order to calculate tax on 1099-MISC and have the chance to learn about your net profit as a self-employed individual. However, you should set the deductions as business expense because this is the only way for the IRS to consider it as necessary for the activities you do as a self employed.
Expense is ordinary if it’s incurred by self-employed worker in similar field – expense is necessary if it’s help to you to complete your job. Expenses don’t need to be essential for it to be necessary. To give you an example, the cost of buying a sophisticated and high-end computer software is a necessary expense for freelance graphic designers. The cost of getting a limousine service to go to your clients on the other hand may be useful but it is not ordinary by tax standards.
You can even file shorter Schedule C-EZ if your business is raking expenses of equivalent or less than 5000 dollars. It doesn’t matter if you’re making use of Schedule C or C-EZ because at the end of the day, you have to calculate tax on 1099-MISC and then, subtract all deductible business expenses that you have incurred. Then, your final net profit should be transferred to a Form 1040 and have it combined with other earnings in order to figure out your taxable income.
You have the responsibility to pay for Medicare and Social Security taxes given that you’re working as self-employed. However, because your 1099-MISC income tax isn’t subjected to self employment tax withholding, it will be you who have to calculate and pay taxes. On Schedule SE, it is just the net profit on Schedule C is calculated.
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