How to Handle 1099 Contract Taxes
- 1). Assemble your income figures for Form 1040. If you operate a sole proprietorship or are an independent contractor and you earn more than $400 in net income, you must file a federal income tax return. You must file Form 1040 specifically, as the Form 1040A and Form 1040EZ do not provide for contract income or Schedule C. You also add any income or wages as an employee on Form 1040.
- 2). File Schedule C for your business and claim your expenses. Total all of your 1099-MISC forms for the year and add all other income you received from the business. You claim all of your income from the business as gross income. Subtract all qualifying and applicable expenses, including utilities, advertising, Internet service, vehicle use and tools and equipment. The remainder is your net income.
- 3). Prepare Schedule SE for your Federal Insurance Contributions Act taxes. At the time of publication, Social Security tax is 6.2 percent for your business and 4.2 percent for your personal filing. Medicare tax is 1.45 for the business and 1.45 for you, totaling 2.9 percent. The total FICA tax is 13.3 percent. These rates are subject to change each tax year -- for example, the Social Security tax for individuals will return to 6.2 percent in 2012 unless delayed by Congress.
- 4). Enter the figures in the lines on Form 1040. Complete Line 12 with your business income figure and Line 27 with half of your self-employment taxes from Schedule SE. Add or subtract Line 12 depending on whether you have a profit or loss from your business each year. Subtract Line 27, along with any other adjustments, to arrive at your adjusted gross income for the tax year. Place the total self-employment tax amount on Line 56, as the IRS adds that figure to your income taxes to arrive at the total taxes owed.
Source...