Filing Taxes: 1099 Forms Every Independent Contractor Should Know About
Whether you have just completed your first year as an independent contractor and you need guidance on filing your taxes, or you’re a seasoned worker looking for a refresher. You’ve come to the right spot!
With the growth and rising opportunities in the gig economy, a better understanding of financial management is in high demand. This desire clocks in most noticeably once tax season comes around as many independent contractors start preparing everything they need to file their taxes.
For those with more conventional streams of income, the burden of constant revenue maintenance is almost invisible as expenses are managed by employers, the IRS takes what’s theirs, and one tax form gets filed in the end. For the self-employed, it’s quite a different story.
Filing taxes (1099) as an independent contractor requires different tax forms, several extra steps, and most of all, an understanding of your gig income and how you track it throughout the year. Although the learning curve is a little steep, it’s easily mastered with the right guidance.
Before you can start the filing process, you will need to understand how to prepare the tax returns for Uber drivers or any other gig, along with what forms are required. You will need to familiarize yourself with the following forms:
- Form 1099-K
- Form 1099 NEC
- Form 1099-MISC
Don’t worry, we’ll go into each one with more detail and how to go about completing each one.
How to File Taxes as an Independent Contractor
Many gig platforms, if not all, consider themselves “third-party payment processors”. In other words, they facilitate financial transactions between consumers and business owners, otherwise known as independent contractors. This is why when filing taxes (1099), independent contractors such as Uber drivers will need to take matters into their own hands.
While filing taxes as an independent contractor will be relatively the same for all, whichever form you will have to use is dependent on your earnings this past year. This is why we always recommend keeping a regular log of your business income and expenses.
The first step is to get your 1099 forms and tax summaries. You’ll use your 1099 forms to fill out your Form 1040. Rideshare companies like Lyft and Uber are required to send out the correct forms to each independent contractor. If you do not receive a form, it’s likely because you did not earn enough during the fiscal year.
If you work for a different gig platform, you should look into whether or not they will send you the appropriate forms. For example, most freelancers won’t receive any tax forms from their contracts on Upwork and it will be your responsibility to report this income on your tax return.
A Form 1099-K tracks self-employment income made with a payment card, like a debit or credit card. You’ll get one of these if you had 200 or more transactions during the year and reached at least $20,000 in earnings. Some states have lower income thresholds. Depending on where you’re located, you may receive a 1099-K for earnings below $20,000.
Introduced by the IRS in 2020, the Form 1099-NEC is for reporting independent contractor income – officially termed “non-employee compensation”. It’s a new way to report self-employment income, taking place of what you would typically report in box 7 of Form 1099-MISC. This form cannot be downloaded online and must be ordered from the IRS website or filed using the FIRE system.
The Form 1099-NEC doesn’t replace Form 1099-MISC as it’s still around to report miscellaneous income like tips and bonuses. You’ll get one of these if you made at least $600 during the year from the list provided by the IRS.
This doesn’t get filed but can help you iron out the details of your tax return. It will include your gross earnings, operating and vehicle expenses, and non-ride earnings, such as bonuses.
If you have not received your summaries by the end of January, reach out to your gig platform about filing taxes. 1099-K forms sometimes come in doubles and if that is the case for you, just combine the numbers on these forms before recording them in their respective locations. Once you have all the necessary information, you’ll need to put it where it belongs.
To help you visualize what you’ll need for filing taxes as an Uber driver or a gig worker for any other platform, here’s what you’ll need:
- Form 1040: A basic income tax form that everyone needs
- Schedule C: Attaches to Form 1040. Use Lines 28-31 on this form to determine your net profits or losses. The result will be recorded on Line 3 of Schedule 1.
- Schedule 1: Used to list all additional incomes and tax deductions. Record your net profit from Schedule C here. Attaches to form 1040.
- Schedule SE: Calculates self-employment tax and self-employment tax deduction. This is an “above the line” deduction that can be taken even if deductions are not itemized.
These forms are all used to calculate your annual gross income which will ultimately decide how much in taxes you owe. For more Uber driver tax information or resources related to your specific gig platform, be sure to double-check with each to see what is required.
Tax Tips for Self Employed Workers
To help ease into the tax season, we have a few tips to consider during the fiscal year. Learning what to expect ahead of time, how to manage these year-round, and knowing the best self-employment apps to keep you on track, will make filing your taxes a much easier process.
As a self-employed independent contractor, the IRS considers you your own business. In legal terms, this is called being a sole proprietor or independent contractor.
When reporting Uber income on taxes, be sure to report your expenses as well. Keep track of any and all business-related expenses throughout the year, and see what qualifies as 1099 write-offs as there are a few key Uber tax deductions that might save you hundreds once tax season arrives. You’re also likely to qualify for the recently approved 20% Pass-through Tax Deduction as a gig worker.
This accounting method, also called cash-basis accounting, records revenue only once payment is received, and expenses only once they are paid. If you’re an Uber driver, tax information passes you by every workday, and being able to get into the habit of recording your income and expenses on-the-go can help you budget with an irregular income. Doing so can also help you avoid miscalculating your income and expenses, thus making tax season much easier.
Avoid Red Flags
It’s better to be safe, and honest than sorry. Be sure the income earnings recorded by your gig platforms match those you put on your 1099 forms. For any deduction claims, you make, be ready to have proof of each transaction in case you do get audited. It’s also important to remain diligent that the deduction you claim is a business-related expense and qualifies as tax-deductible.
For an independent contractor filing taxes, juggling all the 1099 forms and your business expenses can make for a bewildering experience your first time around. Luckily, with the introduction of e-filing, that experience is now easier than ever. Not only are the services affordable, but they also offer step-by-step instructions, oftentimes with assistance from a real CPA.
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