The end Tax-time is near.
However, for 1099 wage earners who pay in over $1000 in taxes, tax-time is near more than once a year.
That leads directly into a few common mistakes 1099 earners make, so let’s get started…
3 Common 1099 Mistakes
Taxes can be a little more complex for 1099 wage earners, since a lot of the burden is on you, not the company you’re working for. That being said, if you know the common mistakes, they’re easy to avoid. Let’s start with the one we already talked about…
- Not Paying Taxes Quarterly. Yes, it’s true, if you pay in more than $1000 in taxes each year, you need to be paying quarterly taxes. This isn’t a big deal. Most standard employees are paying taxes two to four times a month, so four times a year isn’t anything to grumble about.
- Not Properly Writing Off Expenses. As a contractor, you have all kinds of deductions at your fingertips. Your home office, your vehicle and your meals are just a few of your gateways into tax-freedom, two words that are not usually spotted in the same sentence. Start by knowing these 10 write-offs.
- Not Understanding the Tax Form. There are several types of 1099 forms, and 1099s are not the only self-employment form. It’s important that you know which form you need (your company should send it to you), but it’s also important that you know how to fill it out. Do your research and make sure you’re filling everything out properly. You don’t want to risk an audit for something simple.
There are more common mistakes, but those are the most common. Do your research and you’ll be fine.
6 1099 Tax Tips to Make Your Life Easier
Tax-time doesn’t have to be stressful. It’s all about how proactive you are.
Here are a few tips to follow that make everything easier.
- Keep Great Records. If you’re not sure if you need it, keep it. Start a filing system and keep all of your records. Receipts, invoices, and all of the other miscellaneous papers you get throughout the year are essential to knowing what to put on your taxes. Keep good records and stay organized.
- Use Good Software. If you’re doing all of this on your own, you need to invest in some software. It’s worth it. Even if you use a professional accountant to file your taxes, software can help you keep everything together, which ensures a smooth process when it comes time for them to do your taxes. And that brings me to my next point.
- Use a Professional. Tax software and financial software can make your life easier, but nothing is as relieving as having a professional accountant to guide you through every step of the process and help you avoid an audit.
- Know Your Tax Deductions. Yes, we covered this above, but it’s worth repeating. There are tax deductions you’ve never even heard of that apply to you. Find them. A professional can help you find all of the best deductions.
- Deduct Health Insurance Premiums. You don’t have to itemize to deduct healthcare premiums. With the Affordable Care Act requiring you to have health insurance, this deduction can make a huge difference.
- Open a Retirement Account. Not having a 401(k) isn’t a reason to not have a retirement plan. You have several options for retirement planning as an independent contractor, not the least of these being the SEP (Simplified Employee Pension) IRA.
You have plenty of benefits as an independent contractor, but it’s up to you to seek them out and take advantage of them. Things like retirement plans and health insurance deductions can separate the amateurs from the professionals.
If You Do Get Audited
First, it’s not likely, and second, it’s not the end of the world.
I’ve been audited before. It’s all about keeping good records and it doesn’t hurt to keep good relationships.
Many times in an audit, the IRS will be looking for letters from other people to validate your tax claims. It helps to have a lot of people who can help you in these times of stress.
The most important thing to remember here is simply to stay honest. Don’t try to cheat your taxes. They will find you.
The IRS isn’t good at much, but they are good at finding people who lie on their taxes.
It’s not worth the risk.