So, we have covered the aspects of using 1099 forms for business. The most widely used of the 1099 form is the 1099-MISC, and this is what people usually mean when they say ’1099′. If you are doing nearly any type of work or service for any type of business, whether it is a single person operation or a corporation with thousands of employees, the 1099-MISC is the form that they will use to keep track of your earnings on their end. They can then deduct those as expenses.
If you have gotten a 1099-MISC from a business that you did any type of work or service for (and were not on their actual payroll), then the government has also received notice, and they will cross check 1099 forms which companies file against the individuals they show payment to.
Any time you do more than $600 in the course of the calendar year they must issue a 1099 form, and in all but a few specific cases it will be a 1099-MISC. Even if you don’t receive a 1099-MISC, if you have make $400 setting up a business’ computer system you do have to report that income. The reporting just isn’t automatic, as it is when the $600 limit is reached as with a 1099.
It is a bit of extra work for the tax payer, but the forms are fairly easy, especially if you are using some sort of software package to help with your taxes. If you are using a professional service, either online or one in your area they will take care of the forms for you. But, never forget you are on the hook if your taxpayer messes up (despite what they say).
At the least you should know what forms have to be filed, even if you are not going to fill them out yourself.
With 1099-MISC income, you will need to file a Schedule C or Schedule C-EZ (if you are filing 1040EZ). It is also on this form that you will list your deductible business expenses. It is extremely important that you document all business expenses with receipts and notations in some sort of book (or computerized records).
These deductions are separate from the deduction you get on your personal taxes, and they will come off the top of the gross income. Remember, though, if you do not have a provable paper trail of payments and receipts you will not be able to use those expenses to adjust your income properly into profit and operating expenses that will not count towards income,
The other form you will file is a Schedule SE. It is possible, especially if you started a consulting firm late in 2012 that your expenses are more than the money you have earned thus far. The Schedule SE simply shows the amount of profit you made from the business or venture after expenses, and shows how much tax you will owe on that money. If you do not show a net profit you will still use the Schedule SE but you will not owe any business taxes. You only pay taxes on net profits (that is, what is left over after all expenses have been paid).
All of these forms are fairly easy to fill out on your own if you are good with a calculator. Even if you are using a computer program or a tax professional, though, it is good to know how they are getting the number at the end of the last page. Now you should have a clear understanding of how the 1099-MISC form works, and what to do with it!