I have been helping a company make some generic updates/changes to their website for the last year. The overall total I charged was just a little over a 1,000. Anyways I forgot about the over $600 limit they have to issue a 1099, and well I got taxed to hell on those earnings. Basically $1,000 profit turned into $500 profit.
I know I can claim stuff against it to offset the balance but I don’t really have anything to claim (that I know of) Anyways I was wondering what everyone else does. I do not have an official business or anything, just myself as a individual.
So, what do you guys claim against a 1099 or would you recommend me creating a business? Are there any other suggestions you have or that you do personally?
Main reason, I like doing it, it’s easy and is some nice extra cash. But now not sure if its worth it because I’m getting half I what I charge over $600.
Yea, bought a iPhone last year, but probably too late now. Could I claim it next year? I will have to contact my accountant and see what could qualify, thanks for those ideas. Maybe I need to buy some new equipment :)
You can also charge for a percentage of office space, phone, fax etc if you work out of your home. If you are doing it on a regular basis, be sure to upgrade your software and equipment which you can also deduct.
Well, I’ve had some time to look into this so I (supposedly) had a grasp of what I’d answer with :) Basically, 1099 income is like any other freelance income in that you really don’t need to keep a record of 1099 income as long as you have a good system of keeping your own records.
What makes 1099 income such a bitch if you already work for someone is it does indeed get taxed to hell because you’re not really set up to take advantage of the tax benefits that come along with being self employed. So you pretty much take it in the chops unless you are on the road to starting your own business. Now, if you decide "hey I want to start a business and do this full time!", and you start deducting all of the things that come along with that (mortgage, car, gas, heating, cooling, etc), now instead of taking a 40% cut in your profits, you’re looking at more of a 20 – 25% (about the same as if you were employed).
If you are just dabbling and you’ve already got a full time job, I’d say charge to the top of the scale since if you aren’t hurting for money, you get to cherry pick. But as someone who’s self employed they have to be a bit more competitive. The way I view freelance work is more of my personal education and an annual bonus since both 1099 income and bonuses get taxed at nearly the same ridiculous amount.
So I hope that’s fairly accurate. I spoke to a few small business owners about it and that’s the feedback I got. I thought it was useful info to share so hopefully it helps out.