How A 1099 Employee Can Manage Their Earning And Their Taxes
The working field in America has experienced a lot of changes, and more individuals have been working from home than ever before. It is not only individuals who own businesses that will be working from home but even the companies are now outsourcing their services to the freelancers. Hiring a freelancer is a win-win situation for the companies and the freelancer where the company will eliminate the need for office space and having to pay the individuals certain benefits, while the freelancer will have the freedom to control their schedules. One challenge that comes with freelancing is filing taxes, and while you are among the 10.6 million Americans that work from home, you have the task of filing your taxes. Freelancers will have to calculate and submit their state and federal taxes unlike in the case of in-house employees who do not have the responsibility of submitting their tax deductions as the employer handles the part for them.
1099 forms are utilized by the IRS where they use them to track individual’s earning, and when you earn money from interest, you will declare it in 1099-INT and dividends in 1099-DIV forms. Individuals who earn cash from the retirement fund will also have to pay taxes as it is part of 1099 income but when you do not have a regular job you will be termed to as an independent contractor by IRS. Such individuals will include the freelancers, short-term employees as well as self-employed individuals and they are all required to fill out a 1099 misc form.
When one works at a normal job, they do not worry about the taxes as they will be deducted before one gets the salaries, catering for the taxes to the federal government and state taxes as well as social security. Transition to a freelancer from a regular employee may excite individuals, but it doesn’t exempt them from taxes. Don’t wait until the end of the year to find a lump sum amount of cash and pay as your taxes for the year, but it is advisable that you save 30 % of every paycheck to have an easier time paying taxes.
Unlike the case of W-2 employees who might have an easier time to handle taxes, the case is complex on the side of freelancers and other 1099 employees. You can hire an expert to help you file taxes as a freelancer, and they can find out deductions that will save you cash, and also save you from penalties that come from tax debts.
While the regular workers in any company will benefit from numerous benefits packages available such as life insurance, healthcare, and retirement packages, the 1099 workers do not have such privileges and it is up to them to find plans that work for their situation.