Reporting 1099 Income

by Kristine on December 4, 2008

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.

TurboTax® Online Federal Free Edition lets you file federal taxes online – FREE!

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”.

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{ 16 comments }

Melissa December 5, 2008 at 11:46 am

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?

Kristine December 5, 2008 at 2:06 pm

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.

Mrs. Smith January 5, 2009 at 11:54 pm

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

Kristine January 7, 2009 at 4:22 am

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

Brent Smith January 28, 2009 at 5:28 pm

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,

Kristine January 28, 2009 at 6:25 pm

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.

Ronnie February 19, 2009 at 11:10 pm

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!

Spencer February 28, 2011 at 7:42 pm

When is the income reported on a 1099 when it is made 2010 or when check is received for work. Check received in 2011, Dated 2011

Tony April 10, 2011 at 5:39 pm

I am a first time 1099 employee and I must say I am so lost!
I was out of work and on unemployment until Feb 15th when I started as a 1099. I make $35 per hour and work about 50 -55 hours per week on average so my take home is about 1,750 to 1,950 per week. I estimate that I will make around 90,000 per year and so far since Feb 15th have made $15,500 in 8 weeks so I assume 23,000 per quarter is a rough estimate.
My wife works full time and makes about 30k per year and has tax deducted from her check. I have 2 children who qualify for tax credits and a house with about $800 in mortgage credit. I also work from home so I am sure I can get some deductions this way but I am pulling out my hair trying to figure out when to send $ to the goverment and how much. I have read estimates from 25-45% percent. Fourty percent plus just sounds outragous to me. I cant seem to find any calculators on line all of them are geared towards w2. I just need to figure out how much to put aside and when to send it to the goverment! I work for one company and do not own a business. So I have one source of income the 35 per hour and work around 50 hours per week in most cases.
One of my friends is advising me to open a business and consider myself an employee. Is there an advantage to this? I just wanna pay my taxes and do the write thing and not get scalped in the process, and get stay employed.

Tony April 10, 2011 at 5:47 pm

P.s. I live in florida which is tax free and the company I work for is based out of Chicago.

MorriT October 17, 2011 at 9:51 pm

I am an independent contractor who works for an independent contractor. They charge large fees for any complaints from customers. They also sell me supplies to do the work for them. Is this legal? And can they deduct these fees without reporting it as part of my Gross Pay? For example, they deduct these fees every month but when I get my 1099, it has the Net pay and not the Gross Pay.

Bill February 2, 2012 at 12:58 am

I am an independent contractor receiving 1099 forms I have found one company who reported 2010 income on my 2012 1099 form, I already paid my 2010 taxes including this amount what should I do?

Michelle February 13, 2012 at 5:00 pm

I received a 1099-misc from an affiliate program for my website in the amount of $1400 for 2011, but they paid me through Paypal which sent a 1099-k to the IRS that included the $1400 from the affiliate program, how do I account for this on my taxes?

david mellott February 17, 2012 at 5:27 pm

I recently started receiving royalty checks from Marcellus gas. I received a 1099 Misc. Where do I report this income on the 1040EZ form? On line 1a Gross Compensation?

Teresa April 12, 2012 at 2:23 am

My husband worked temporarily for about 2 months helping on a cattle ranch. He was not full time. He would work when help was needed.They sent him a 1099-Misc for $2450.00. He did not provide anything but manual labor for his services so there is nothing to deduct. Is there any kind of exceptions for day laborers?

dyg April 17, 2012 at 4:33 pm

Dear Kristine,

Thanks for actually answering the question! The blog wasn’t very helpful in answering it. The IRS website is confusing, makes it seem as though you need to order a form (which is depicted in red.)

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