Got a 1099? Tax Return Preparation Tips

As a freelancer, tax return preparation can be quite overwhelming. Because you are considered a "sole proprietor," you're responsible for paying all your taxes and keeping up with all your income. As a business owner, you will also be required to make estimated tax payments every quarter, to assist with filing at the end of the year.

What is a 1099?

You will receive a 1099 form from your clients at the end of the year, with all of the income you've earned from them. The 1099 form works like the W-2, because it reports the income you've earned to the IRS. You'll need to report income from all of your 1099's, and income you do not receive a 1099 for, to avoid audit.

How to Handle 1099 Tax Forms
Treat these forms as you would a regular W-2. The easiest way to deal with them is to separate your business income from your personal income, so you can easily see all the income you need to report to the IRS. If your 1099's add up to less income than your business income, you run the risk of getting an audit notice.

Keep Track of Expenses 

Throughout the year, you will want to keep track of all your business related expenses. These expenses will serve to help you find the greatest number of tax deductions. This will reduce the taxable income you have, and therefore the amount of taxes you have to pay. Good record keeping is key for freelance tax preparation.

Expenses to consider:

Advertising: Any expenses related to advertising your business.

Insurance: Any insurance you use to operate or protect your business. Health insurance premiums are included for those who also pay for their own coverage.

Legal Services: Any fees you pay for legal assistance related to your business.

Rent: Even though you won't have the expense of traditional office space, you can deduct a portion of your rent or mortgage based on the area of your home you use for your business. You can figure this out based on the square footage you use or as a comparison to the total number of rooms in the home.

Supplies: Anything you need to purchase to conduct your business, such as pens, paper, printers, ink, labels, etc. can be deducted from your income.

Travel: Any business related travel expenses, including meals, entertainment (such as taking a client to see a show), and lodging are deductible.

Utilities: As with rent, a portion of your power and water may also be deducted. Businesses operating on the web may also deducting Internet provider expenses.

Interest: Any loan interest may also be deducted.

Other: Any business related expenses such as organizational dues or web design.

With your expenses in hand, you will be able to compare your business income to your business investment, and therefore determine if you have a gain or loss for tax purposes. More often than not, freelancers experience a business loss. You'll pay self employment taxes at a rate of 13.5% based on the business profit.

http://www.wahm.com/articles/got-a-1099-tax-return-preparation-tips.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter&utm_medium=Email&utm_source=ExactTarget&utm_campaign=