Tax question?

Question

I work as an independent contractor. I will get a 1099 at year end for what I was paid. No deductions are take out. Do I have to pay self-employment taxes (Social Security tax) on this. Can personal expenses used to generate this income be deducted? I use my personal vehicle for this so can I count mileage?

Answer 1

Yes, you must pay SE taxes on that income. Reasonable and necessary BUSINESS expenses may be deducted from the gross income. Personal expenses may not. Business use of your vehicle are deductible but commuting expenses are not.

File Schedule C or C-EZ with your Form 1040 tax return to calculate the net profit from the business activity. File Schedule SE to calculate the SE tax on the profit.

If you owe over $1,000 at filing time you will also owe penalties and interest for underpayment of estimated taxes. As a self-employed individual you must make quarterly estimated tax payments using Form 1040-ES. These are due on 4/15, 6/15, 9/15 and 1/15 of the following year. If your state levies an income tax you need to make estimated payments to the state as well. If you don't you'll be facing penalties there as well.

Answer 2

Yes your 1099 income is subject both to self-employment taxes and to regular income taxes. The taxes are figured on the net income of the 1099 work - if you use your personal car for business use you can deduct mileage - but going from your home to your main place of business for the 1099 work is commuting expense and not deductible, you can only take the deduction for miles traveled in the course of performing your work.