Q. I received a 1099-MISC with an amount in box 7 reported as non-employee compensation. Why am I considered self-employed and do I have to pay my own social security and Medicare taxes?
A. Since you received Form 1099-MISC, rather than a W-2 form, the payer has considered you self-employed or an independent contractor and did not withhold social security taxes or Medicare taxes (and usually no federal or state income tax). You must file Schedule C (Profit or Loss from Business) or Schedule C-EZ (Net Profit from Business) to determine your net profit or loss. Expenses associated with this income can be deducted on either of these forms. If your net earnings from self-employment are $400 or more you will have to use Schedule SE (Self-employment Tax) to calculate the social security and Medicare taxes you owe on this income. These forms are filed along with Form 1040.
Q. What is the difference between an employee and an independent contractor?
A. The IRS has several factors that determine if an individual is an employee. Among these are: that an employee must comply with instructions on when, where and how the work is done; has hours of work established by the employer; works on the premises of the employer; is paid by the hour, week or month (as opposed to on commission or by the job); performs exclusively for the company rather than working for a number of companies at the same time; and has a continuing relationship with the employer. These factors are listed in full on Form SS-8 (Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding).
Q. My employer is issuing me a 1099-MISC but I think I am an employee. What can I do?
A. You should go back to your employer and try to obtain a W-2 form.
Q. I will have self-employment income this year. How can I make sure that I will not owe a large amount of money to the IRS when I file my tax return?
A. If you usually get a large refund you may have sufficient tax withheld for this year. Or, if you have withholding (from W-2s, etc.), make sure you have enough withheld to cover the tax on the income and the self-employment taxes. If you dont, you can submit a W-4 to your employer and increase the amount of federal (and state) tax withheld. Another option is to make quarterly estimated tax payments. Your tax preparer can help you do this.
Q. I usually have little or no taxable income, so does that mean I will still owe self-employment tax?
A. You must pay self-employment tax on your Form 1040, if your net self-employment earnings are $400 or more, even if you owe no income tax.
BOUGHT A HOME
If you purchased a Home during the tax year and made monthly mortgage payments to a lending institution then you are able to write off the interest paid to that institution for that tax year. Your institution will send you a 1098 in the mail itemizing the amount you paid. If you are doing a RENT TO OWN, then you must secure either the tax id number from the landlord or the social security number from the landlord (in most cases the landlord is responsible for issuing you a 1098 like the lender reflecting the amount of interest you paid throughout the year) along with the accurate dollar of amount of interest you paid towards that home for that year.
CHURCH AND CHARITY CONTRIBUTIONS
When you contribute to your church or donate to you charity you are to secure a receipt so that you can write off your donations.
JOB SEEKING EXPENSES
If you are looking for a job in your current profession and can itemize your deductions, certain expenses may qualify as miscellaneous deductions. Employment agency fees, resume printing, phone calls, and mailing expenses are examples of deductible items.
JOB RELATED EXPENSES
Some of your expenses that may be deducted include union dues, job-related magazines and books, and other related business expenses. Generally, you must depreciate the cost of tools used in your work. If your employer requires you to wear work clothes or uniforms that are not suitable for everyday wear, you may deduct the cost and upkeep.
TRAVEL EXPENSES
You may be able to deduct business travel expenses if you must conduct business away from your tax home. The cost of transportation, lodging, laundry, dry cleaning, and telephone expenses are some of the deductible expenses. Generally, meals are only 50% deductible.
MEDICAL EXPENSES - ITEMIZED DEDUCTIONS
If you itemize your deductions, you may be able to deduct medical expenses. You can deduct the amount that is more than 7.5% of your adjusted gross income. Taxpayers are allowed to deduct unreimbursed medical and dental expenses for themselves and family members.
MEDICAL EXPENSES - OVERLOOKED DEDUCTIONS
Don‘t overlook any medical deductions for which you may qualify. Hearing aids, eyeglasses, contact lenses, hospital fees for nursing, physical therapy, lab tests and x-rays are all deductible. The mileage to and from a doctor or dentist‘s office is deductible as are bus or taxi costs.
MEDICAL EXPENSES - MAXIMIZE YOUR DEDUCTIONS
If you file Form 1040 and itemize your deductions, you may deduct medical expenses that are over 7.5% of your adjusted gross income. Careful tax planning may allow you to plan ahead so that you could take more medical deductions during one tax year instead of spreading them over two. For example, in a year that you already have substantial medical expenses, schedule and pay for your routine doctor, or dentist appointments by December 31st instead of early in the next year.
SELF-EMPLOYED HEALTH INSURANCE
If you‘re self-employed, you may deduct up to 60% of your medical insurance costs that cover yourself, your spouse, and your dependents as an ÒAdjustment to Income on Form 1040. To do this, the taxpayer and/or spouse must not be covered by an employer subsidized health plan.
MEDICAL EXPENSES FOR LONG-TERM CARE
The costs of qualified long-term care services can generally be included as medical expenses. These costs include a part of the premiums for qualified long-term care insurance. Long-term care insurance premiums covering these qualified services are deductible as medical expenses (subject to the 7.5% of the adjusted gross income limit and certain age limitations).