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How to Report Self Employment Income Without a 1099 Form
At a Glance
- Self-employment income is reported using tax forms such as Form 1040 and Schedule C.
- Freelancers receive Form 1099-NEC for payments over $600.
- Cash income, even without a 1099 form, should be reported.
- Claiming business write-offs can legally lower taxable income, reducing the overall tax bill.
Even if you are self-employed, you still have responsibilities when it comes to your income. Your income should be reported, and in order to do so, you will need a special form known as Form 1099. But what do you do if you don’t have a 1099 form?
How to report self-employment income without a 1099 Form? Check out this post to learn what to do in this scenario.
Reporting Self-Income Explained
Having to report federal income taxes is a responsibility that many Americans share, and it can be quite challenging. But confusion exceeds every other feeling, especially when it comes to those who are new to filing their taxes or to freelancers.
As a self-employed individual, you will have to deal with your taxes differently as compared to employed individuals, and you will also have a self-employment tax bill to take care of. Not to mention that these will be accompanied by other tax forms.
Someone who is a traditional employee will receive a W-2 from their employer when the tax year ends. A W-2 will report all salaries, wages, or tips earned by the worker.
But as a freelancer, you’ll receive Form 1099-NEC, and this is something you may get from every single client or platform that gives you at least $600 for your services. “NEC” at the end of the form’s name stands for “Nonemployee Compensation”. It pretty much shows that you offered other people services on a freelance or contract basis.
1099-NEC and other similar documents are usually called “information returns”, and a copy will be sent to the IRS for every single one that you get. Therefore, you must report the income you get because the IRS will know about it if you avoid listing a payment.
Tax Forms for Reporting Income
In order to report income, workers are required by the IRS to use specific tax forms. The IRS takes all the income you receive in the form of property, services, or money to be taxable income. Therefore, it has to be reported unless any specific law exempts tax payments. One should report taxable income using Form 1040 – thus, you should use this tax form when having to file your taxes.
As an independent contractor, a person should use Form 1040 and Schedule C. With Schedule C, you would report profit or loss from a business.
To be able to report your income on these tax forms, it’s crucial to have records of every single expenditure and earning you get.
1. How to Report Self-Employment Income Not on a 1099 Form
When you receive any type of payment as a self-employed individual, you usually get a 1099-NEC, which the IRS keeps track of. So, the IRS will only be aware of business income that 1099-NEC forms report. What do you do when you get payments in cash, though?
Even as a freelancer, you may receive cash, which does not get reported on a 1099-NEC form. While the IRS may be unaware of this money, you should still report it. It still counts as income, and it should be mentioned when filing your taxes. Not receiving a 1099 form shouldn’t be an obstacle in your way.
There are several reasons why some freelancers do not receive 1099s for their payments. They may have earned amounts lower than $600 or the company paying them simply forgot to issue a 1099 Form.
When you earn more than $600, you are considered self-employed, so the company you work for should issue a 1099, but if they don’t, you should contact them. It’s especially important to reach out to them if you don’t get it by the end of January next year.
To report your income, you should file a Schedule C with your business income and expenses. Also, you should pay a self-employment tax.
Without a 1099 Form, independent contractors who earned cash should keep track of their earnings, estimate them and file them at the end of the year no matter what.
2. Reporting Cash Income Explained
Are you ready to report your cash income? If that’s the case, you should know how to do it properly and keep track of your cash income now and in the future.
Tracking Cash Income
Reporting your cash income without being aware of the exact amount you’ve received can be very difficult. After all, you just wanted to take the money for your hard work and use it for personal expenses or emergencies. You didn’t memorize how much you’ve earned in cash throughout the year.
For this reason, you should always track your cash income. It will help you especially when it comes to tips. Tips always vary in amount, and you may want to write down all amounts you receive.
Luckily, the IRS decided to create a form that is very easily accessible, and it can help taxpayers log any tips they get. Keep in mind that you are not required to use this to track your tips – so, you don’t have to use it if you don’t want to. However, it can be extremely useful and make your life easier.
The form’s tip log format will ask for the amount you received, the date of the tip, and the payment method.
What’s great is that the format can be used to track all the cash income you get, so it is not limited to tips.
Reporting Cash Income
Reporting your cash income when you file your taxes is not that difficult, but you must ensure you fill out your Schedule C accurately by including it. Schedule C will feature your business expenses and income.
You can simply include your cash income with your “gross receipts” on the first line of the form. Also, every income you received that does not have a 1099 form should be included in this section.
How to Lower Your Tax Bill After Reporting Tax Income
Everyone wants their tax bill to be lower, and for this reason, some self-employed people will decide to stay quiet about their cash payments. But this is not the best way to do it, and it is not legal.
Fortunately, there are legal ways to lower the taxable income and give the IRS smaller amounts of your money when you file your taxes.
To make this possible, you should claim your business write-offs. When you are completing your Schedule C and entering your cash earnings, you are probably staring at a high gross income. But you do not have to pay your taxes on the entire amount.
The net profit you get as a freelancer is the only one that gets taxed. So, everything you used to do contract work or run your business can be subtracted.
- Why Was No Federal Income Tax Withheld From My Paycheck?
- Why Do I Owe Taxes?
- Why Do I Owe State Taxes?
- Are You Exempt from Federal Withholding?
- How to File Taxes With No Income
- Can You File Taxes Without a W2?
- H1B Taxes: Everything You Need to Know
You should make sure to report your taxable income no matter what. Being self-employed does not exempt you from doing it, so you should take all the steps necessary for reporting your income. Not having a 1099 form is no excuse to not file the money you received. If you got paid in cash, you should keep track of it and then write it down on your Schedule C. This way, you respect the law and make things easier for yourself.