Filing as an Independent Contractor (1099) | Incite Tax
A CPA walks independent contractors through filing 1099 taxes: choose a business entity (sole proprietorship, LLC, or S-corp), pick software that matches your structure, track income and expenses meticulously, and generate profit-and-loss statements. The complexity of contractor tax rules means hiring a professional often pays for itself.
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How do I file my taxes if I'm an independent contractor? Meaning you get a 1099-NEC or 1099-miscellaneous or any other sort of income that isn't coming across as a W-2. You're basically an independent contractor. What documents do I need in general? And the answer is all the documents. You need all the documents that are tied to your Social Security number because the IRS gets that information. So you got to report it yourself. When it comes to being an independent contractor, I'm gonna try my best to help you if you're looking to do this yourself. But look, I know it may seem like I'm biased, but this is an area, if you're an independent contractor, you need to use a professional. The majority of the tax code, the part that is up for interpretation, if you will, relies heavily on independent contractor type of income. First challenge you have, what entity should you be choosing? Do I file as an LLC? Do I file on my Schedule C, which is my personal return? Do I file a separate return on an S corporation? Do I file a partnership? I can't tell you. I can't answer that question for you right now in a general video. We've done lots of videos, so please check out our previous content. We do go into a lot of education on what entity makes the most sense. You need to choose. We do strongly encourage you to avoid having the status of sole proprietor. So having an LLC set up is at least a good minimum step. Once you choose the right entity, then based on that, you're going to file your independent contractor activity the way that entity needs to be filed. If you're a single-member LLC, LLC, that gets filed on a Schedule C. If you have more than one member in your LLC, that gets filed as a partnership return. And if you make an election on either of those situations, you could technically need to file an S corporation. This situation alone can save you taxes or hurt you, which is why we recommend talking to a professional about the type of income you have so that you make the right choice. We wanna keep money in your pocket. We don't wanna just willingly give it to the IRS. The right entity choice can save you thousands and thousands of dollars in taxes. Okay, so right entity choice leads to where you file your independent contractor activity. Assuming you've figured that out and you're still wanting to do this yourself, you then need to find a tax software that has those forms that you need in order to file. TurboTax is a really big company, but there's other companies, TaxSlayer, TaxCut. There's so many softwares out there. Many softwares, especially the ones that are advertised like free, Free, free, free, free. Come join us for free. If you ever pay attention to the little fine print at the bottom of your commercial, they're basically telling you like you're not going to qualify for this, and they don't tell you that you're going to have to pay money to use the software to file your return until you've done all the work already. So please be aware all those companies market, in my opinion, in a very sleazy way. You be the judge. So let's assume you're still using a software. The software usually comes with the forms that are available. So not all tax software. Softwares give you the option to file a Schedule C. Sometimes that's a separate upgrade for the software. And then on top of that, if I have to file a separate business return, you got to make sure you find a software that offers that as an option. Does it let you file a partnership return? Does it let you file an S corp return? You have a C corp for some weird reason? Is it going to let you file the C corp tax return? Because they're completely separate forms. Keep all that in mind. Do your research. If you're doing this yourself, pick the right tax software. As a professional CPA, we save our clients more money in taxes than what they pay us in fees. So if you find someone good, especially with independent contractor income, there's a lot of opportunity to make sure someone's strategizing the right way. That was like almost the whole tax code is written for you. You get to use the same rules as large companies. Then you want to make sure, assuming we've done that whole rabbit hole, right, right entity, I know where that entity needs to be filed and I picked the right software. You need to track your business income as an independent contractor. Not all of your income may be reported to you on some sort of form. Again, that's likely going to be a 1099-NEC or a 1099 miscellaneous. But it's possible you received income that's not reported there. If you're audited, the IRS is going to look at your bank accounts. They're going to look at your deposits. So you're going to want to make sure that your business income matches the business deposits. So you track that and then you track your deductions, expenses, synonymous words. How do you do that? You're not— it's not a super active independent contractor activity. We have clients who do that just with an Excel file. If it's your full-time gig and there's a decent amount of transactions, QuickBooks Online is a great option. We're not a fan of some of the other softwares. There's a lot out there, but Pick the one that works for you. QuickBooks Online is the one that we recommend for our clients because it's pretty user-friendly. But again, with a dose of reality, user-friendly can lead to someone who doesn't have an accounting background doing their books, thinking they're doing it the right way because QuickBooks Online makes it seem so easy, but they categorize expenses the wrong way and therefore you're not going to get the right tax deductions if you don't categorize your expenses the right way. If you're an independent contractor, you are responsible at the end of the day for tracking your income and your expenses. Even if you're paying a bookkeeper and the IRS audits you, they're not going to come after the bookkeeper. They're going to come after you. It's still your responsibility. You can't abdicate that. Now, it's the same thing we tell our clients. We're going to do a great job for you. We're going to give you the right information, but it's still at the end of the day, this is your set of books. You are the one ultimately responsible for them. So I've tracked my income, I track my expenses. Through that process then, I can now create a profit and loss statement, and sometimes I need to look at a balance sheet as well. If I've bought equipment, I'm going to need to look at my balance sheet to make sure I'm maximizing all the tax savings possible. Put that information into the tax software and you end up with some taxable income. So that is a super generic overview of how do you file your taxes as an independent contractor. There's a lot involved, right? Independent contractor type of Income way more complicated. A lot more things available to you though. Take advantage of that. Use the complexity to help you keep money in your pocket.
