[aclug-L] Re: Freelance Technical Support
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On Tue, 29 Jul 2003, Jeff Vian wrote:
> >>Actually I believe that figure is $400/year.
>
> >>$600 is the limit. If you make more than that you have to report it on a
> >>1099 form if I remember correctly. Not sure about the form, but I know the
> >>amount is $600 for federal taxes.
> >>
> >>
> You are right in part.
> the $600 is the limit where you would need to report amounts PAID to a
> single individual on a 1099. (This shows up on the child care form where
> it asks if you have reported it on a 1099.) It also applies to other
> types of services as well.
>
> for example, You are working and have to pay a babysitter to watch a
> child so you can work.
> If you pay the babysitter a total of $590 during the tax year, no
> 1099 is required.
> However, if you pay $601 for the tax year, you are required to report it
> to the IRS on a 1099 so you can support your expense, and they have a
> way of checking/requireing the babysitter to report all the income received.
>
> (my accounting minor stands in good use here) :-)
> I do not have time to review the tax code to see the exact amount after
> which you must file, but unless it is a hobby (or even if it is) in
> cases where you otherwise have to file taxes, income from any source is
> required to be reported.
You are correct that all income is required to be reported. The issue
(and where the $400 comes into play) is the point at which you are
required to file a Schedule C for that income.
It is important because as soon as the income moves from just being
reported as misc income and goes on your Schedule C then you not only have
to pay income tax on the amount but also an extra 15% in self employment
tax on it. Self employment tax is one of the reasons it is so easy early
on in the life of a business to pay more in taxes than you even take home.
Avoiding self employment taxes where possible is the biggest part of tax
planning for the self employed. 15% on top of everything else (and before
everything else) will eat you alive.
Chris
--
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Chris Owen ~ Garden City (620) 275-1900 ~ Lottery (noun):
President ~ Wichita (316) 858-3000 ~ A stupidity tax
Hubris Communications Inc ~ www.hubris.net ~
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