I just received a Form 1099-NEC. What is it, why did I get it?

One of the new IRS forms this year is a Form 1099-NEC. The NEC stands for “Nonemployee Compensation”. This form is now used to report independent contractor income. This income in the past has been reported on 1099-Misc, which is still in use for miscellaneous income such as rent or payments to an attorney. By the way, CONGRATS! You are a small business owner!

What is an Independent Contractor?

An independent contractor is a self-employed person or entity contracted to perform work for—or provide services to—another entity as a nonemployee. As a result, independent contractors must pay their own Social Security and Medicare taxes. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. Some examples are:

· Delivery jobs – Uber, Waitr

· Lawn Maintenance

· Salon – booth renters

· Selling on ebay or at flea markets

· personal trainer

What do I do with a Form 1099-NEC?

If you received one or many of these, you are a small business. You need to report this income on a schedule C of your 1040 personal tax return. The great thing is you’ll be able to offset this income with business expenses such as:

· The costs of tools you purchased to earn the income

· Business miles you drove to earn the income

· Your home office

· And many others

With these business deductions – the IRS will require you to have receipts, log books, etc. You may need professional tax help preparing this.

TAX TIP:

Keep track of your deductions. IRS Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C)