Reporting 1099 Income
December 4, 2008 · Print This Article
I first started the Ebiz Tax Tips blog because I was getting a lot of questions from eBay sellers about taxes – whether they needed to report their income, what they could deduct, etc.
That was a couple of years ago. Since then the number of bloggers, affiliate marketers and other people making money on the internet has exploded. And the IRS has taken notice!
The number of 1099s that will be issued and received this year will probably be much larger than ever before.
So, you may be wondering, will you get a 1099? And what should you do if you do receive a Form 1099? How do you go about reporting 1099 income?
Most people are aware that they must report wages, salaries, interest, dividends, etc. on their tax returns, but many people do not realize that they also have to report other income, such as cash earned from side jobs, barter income when you exchange services or goods with someone else, awards, prizes, and even gambling winnings.
Basically, you have to report ALL income from all sources, unless it is specifically exempt from taxes.
That means if you earn money from ads on your blog, selling items on eBay, selling products for a commission, or providing a service to another person (if you are a VA, web designer, coach, etc.), then you must report that income.
If you are a sole proprietor or an independent contractor and you earn $600 or more for the year (from an individual or a company), you should receive a Form 1099-MISC reporting your income. This income is reported to you and the the IRS.
Even if you don’t receive a Form 1099, your income is still reportable. There is a common misconception that if you don’t receive a form 1099, you don’t have to report your income. Wrong! If you are earning money from a product, service, or other activity (blog, ad revenue, affiliate commissions, whatever the source) you have to report that income to the IRS.
The good news is that you can deduct ordinary and reasonable business expenses against that income. So you are only taxed on your net profit, not your total income.
To report your income and expenses from your online business, use
Schedule C: Profit or Loss From Business, which is then attached to
your Form 1040 (your personal tax return). You must also complete
Schedule SE to calculate your self employment taxes if your net profits
from your business exceed $400 for the year.
Note: As a self employed business owner, you are responsible for the self employment tax on top of your regular tax on your net profits. The SE tax is 15.3% and can add up very quickly!
To minimize your SE tax, it’s important that you understand the deductions and credits available to you as a small business owner. For a list of tax deductions for online business owners, please read “List of Tax Deductions for Online Biz Owners”.
Recommended Resources: If you are a new business owner, and you have questions about reporting your income, what you can deduct and how to minimize your taxes, consider signing up for the New Biz Tax Consultation.
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Great site! Definitely adding you to my subscription list!!! How do you recommend people track their income? Quicken-like software or can simple Excel spreadsheets do the job?
Hi Melissa – QuickBooks, Quicken Home & Business, or spreadsheets are all good ways to track your income and expenses. The most important thing is that you find a system that you will actually DO.
I am married and we both of full time jobs where taxes and everything is already taken out. However, with this economy I started working a part time job in September-December making a total of almost $8,000. The company will issue me a 1099. How do I report that, about how much taxes will i have to pay and what are some tax savings tips?
Thanks for any help you can provide.
Mrs. Smith
Mrs. Smith – thanks for the comment.
If you are an independent contractor (you receive a form 1099 instead of a W-2), then you will need to report your income on Schedule C, which is then attached to your personal income tax return.
You are allowed to deduct business expenses from your income, such as mileage, supplies, and other out of pocket expenses necessary to perform the services you provided.
You also need to complete Schedule SE to compute your self employment taxes. Your total tax on your net profits will be the SE tax (15.3%) plus whatever tax bracket you and your husband fall into (could be anywhere from 10-35%).
Most tax planning strategies needed to be implemented before 12/31/08 to help your 2008 taxes, however you still have time to contribute to an IRA to reduce your 2008 taxable income.
Hope this helps!
Kristine
In reporting information on a 1099 is the amount included based on when the income was earned or when the payment was process. For example if a check related to 2008 was not processed and dated in 2009 does it show in 2008 pr 2009?
Thanks,
Brent – it depends on the person issuing the 1099; if they are a cash basis taxpayer, they will probably issue the 1099 based on when the income was actually paid, if they are an accrual basis taxpayer, they will issue the 1099 based on when the income was actually earned. For an accurate answer, you really need to ask the person issuing the 1099.
I am a teacher and work full time. My husband is not employed but earned about $2000 in 2008 designing websites. He has received a 1099 for that amount. Will he owe taxes on the $2000 that he made? We file together.
Thanks!