Self-employment comes with many perks, including deserved business expense deductions. Did you drive during the course of the work you performed? You can take a mileage deduction. Did you buy computer or office supplies to use for consulting? Then you can deduct your office supplies or office equipment.
But what forms should you expect when filing your taxes? If you were self-employed, or worked on a contract basis with no taxes withheld, your income may be reported to you on different tax forms: a 1099-MISC or 1099-K. Freelancers and consultants who make over $600 can expect to receive a 1099-MISC, whereas those who earned income as a freelancer working in the on-demand economy, like Uber or Lyft, may receive a 1099-K. Let’s break it down:
The 1099-MISC is issued to independent contractors or the self-employed who have been paid $600 or more. Wages might not trigger a 1099-MISC if they are under $600, but you are still responsible for reporting all income whether a 1099-MISC was received or not. As a self-employed person, you are required to report your self-employment income if your net earnings from self-employment is $400 or more.
In this situation, the process of filing your taxes is a little different than a taxpayer who only receives regular employment income reported on a W-2. When you receive a 1099-MISC, you can claim deductions on a Schedule C, which you can then use to calculate your profits from self-employment. Luckily, you don’t have to know about form Schedule C: TurboTax will ask you questions about you situation, and fill it out for you based on your answers so that it is effortless!
Form 1099-K, also called Payment Card and Third Party Network Transactions, is used by credit card companies and third-party processors like PayPal and Amazon to report the payment transactions they process for retailers or other third parties. You’ll receive a 1099-K if you accepted credit cards, debit cards or pre-paid cards and had over $20,000 in sales or more than 200 individual transactions through a third party processor. It reports the gross amount of the transactions, which means if you’re a Uber or Lyft driver, your fees, commissions, safe rider fees or phone rental payments are not deducted. You can deduct those as part of your business expenses along with the mileage you drove.
Your ride-share operator, or other on-demand economy partner, will provide you a tax summary you can use to translate the 1099-K information into some of the income and expenses to report when you file your self-employment taxes.
Again, the great thing is, you don’t need to worry about knowing these tax rules or how to fill out forms. TurboTax will ask you simple questions about you and your business and help you find the tax deductions and credits you are eligible for based on your answers, saving you your hard earned dollars so you can keep more money for your business.