Optima Tax Relief Reviews the Difference Between 1099-MISC and 1099-K
With the rise of the gig-economy, more and more Americans are opting to be their own boss. While there are many benefits to working for yourself, there are challenges, like taxes. If you are self-employed, a freelancer, or an independent contractor, your taxes aren’t automatically withheld. Instead, you will report your income to the IRS using one of two forms: 1099-MISC or 1099-K. It can be confusing to know which may apply to you. Optima Tax Relief reviews what you need to know about 1099-MISC and 1099-K forms as an independent contractor or business owner.
The 1099-MISC is issued to independent contractors or self-employed individuals who are paid $600 or more during the tax year. If your wages are less than $600, or you don’t receive a 1099-MISC, it doesn’t mean you are off the hook. You still are required by law to report your income if annual net earnings exceed $400. Filing taxes using a 1099-MISC differs quite a bit from those workers who receive a W-2. A benefit of being self-employed is your ability to deduct certain business expenses against your income using a Schedule C form. Using those deductions, you can decrease your tax liability. For further information, the IRS website has a full set of instructions for the 1099-MISC form.
A 1099-K form is used to report payment card and third party network transactions form. It’s issued by companies that process payments, like credit card companies or online payment methods like Paypal, Square, or Venmo. You will receive a 1099-K if the following applies:
- You accepted credit cards, debit cards or pre-paid cards, and/or
- You had over $20,000 in annual sales and more than 200 third party network transactions.
The 1099-K form will include the gross income, meaning you will still need to deduct your business expenses. You may be eligible to deduct expenses such as fees, commissions, mileage, phone bills, software, and other business-associated operating costs. More information regarding the 1099-K form can be found on the IRS website. For a full understanding of which expenses may be deductible, it is recommended that you consult with a qualified tax professional. They can provide you with an accurate calculation of what you owe and help you develop a tax strategy suited to your specific situation.