Starting Your Self-Employed Business
If you manage to make a 1099 arrangement you don’t need to do anything special to get started, at least as far as the IRS is concerned. Your state, county or city may require you to get a business license or make a Fictitious Name or DBA (Doing Business As) Statement. You’ll need to check with your local government agencies to find the requirements in your area.
One advantage is you can start right away; you can deposit your checks right into your personal checking account. Although, if you can find a no fee checking account it will make your bookkeeping a lot easier if you have a separate bank account for your business and pay all your expenses from this account. You can keep track of your books in something simple like Quicken or MS-Money.
Filing Your Income Taxes
As far as taxes go, you should receive a 1099-MISC from your employer indicating the payments made to you for the calendar year. This is what people are talking about when they say they are “going 1099”. What they are really saying is you’re a self-employed sole proprietor and the client is required by IRS regulations to report the amounts they pay you on Form 1099-MISC. They report this amount both to you and the IRS. You report the income and deduct expenses that are directly related to the business on Schedule C. The net income from your business will flow through to your 1040, line 12 and you will pay tax on the net income at your personal marginal tax rate.
Income
The IRS will match the total income you report on your Schedule C to the total of all 1099s you receive. If you under report your income the IRS will come knocking on your door looking for a good explanation.
Expenses
As a contractor, expenses usually don’t amount to much compared to the income most professionals receive. Any expenses incurred to purchase books, subscriptions, professional organization dues, education for maintaining and improving your skills, etc. are all deductible. If you have a second phone line dedicated to business use, you deduct all expenses for that line. However, if you have only one land line in to your home, you can only deduct charges for specific calls you can identify as business-related. Your client may require you to get business liability insurance and those premiums are deductible. If you hire a bookkeeper, payments to that person are deductible, too. As are any amounts you pay to have the Schedule C, SE, and related tax forms prepared as part of your personal return. If you have to purchase equipment look into the Section 179 election which allows you to expense in the current year amounts paid for new equipment used in business.
For more information on any of these services please call toll free 1-800-324-5013 to speak with one of our knowledgeable consultants at Nevada State Corporate Network between the hours of 8-5 Monday through Friday.
To Your Success,
Susan Zapper
CEO of Nevada State Corporate Network
Check out Part ONE and Part TWO of this series on how to pay yourself.
