Form 1099-MISC is typically received by independent contractors. If you work as an independent contractor and earn more than $600 during the year, the Internal Revenue Service requires your employer to send copies of this form to you and the IRS. You can use it to list your earnings on your Form 1040 tax return, claim any deductions and complete your other tax forms.
Schedule C discloses profit or loss from business transactions. Use Schedule C to report the income you earned as an independent contractor and any business expenses you incurred during the year. Examples of deductible business expenses include office supplies, business-related travel and licensing fees. For example, if you work as a freelance writer, you may claim deductions for the cost of copies, printer cartridges and paper. Keep in mind that you must supply valid receipts to claim deductions for business expenses. Likewise, if you plan to deduct business mileage, you must keep an accurate log throughout the year.
Use Schedule SE to calculate your self-employment tax, which consists of Social Security and Medicare taxes. The amount you must pay is based on your net self-employment earnings for the year. You can also use Schedule SE to calculate your self-employment tax deduction, which reduces your gross income. After completing Schedule SE, include your total self-employment tax and the amount of your self-employment tax deduction on Form 1040.
If you use your home for business purposes, complete Form 8829 to determine your allowable deduction. You will need to know the total square footage of your home and how many square feet you use for business. After calculating the value of the deduction, enter it on Schedule C. You can claim this deduction only for spaces used solely for business purposes. For example, if you have a home office that doubles as a bedroom, you cannot claim a deduction. However, if you use the room only as an office, you can deduct a percentage of your home's utilities, mortgage interest, insurance and other related expenses.
Complete Form 4562 to claim deductions for amortization and depreciation. Amortization allows you to recover the cost of intangible expenses over a fixed period using annual deductions. Examples of amortizable expenses include startup costs and goodwill. Depreciation allows you to recover the cost of tangible property using annual deductions over a fixed period. Examples of depreciable expenses include the cost of business equipment, machinery, buildings and vehicles. If you qualify to amortize or depreciate an expense, list the qualifying properties on Form 4562, calculate your total deductions and enter the results under "other deductions" or "other expenses" on your tax return.
Quarterly Estimated Taxes
If you are self-employed and expect to owe $1,000 or more in taxes, you must make estimated tax payments each quarter. To calculate your quarterly payment, use the Form 1040-ES worksheet. Payments are due April 15, June 15, Sept. 15 and Jan. 15 of the following year. Make your payments using either the Electronic Federal Tax Payment System or the payment voucher included on Form 1040-ES, both of which are available on the IRS website. Making these payments on time is important, as a failure to pay can result in a penalty if you owe more than $1,000 at the end of the year.
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.