Home Equity Line of Credit

If you have received a 1099 form, you must report this income on your tax return. This income was most likely paid to you as an independent contractor, which means that the entity that paid you did not deduct taxes from your pay.

Many different situations qualify for an independent contractor. Most independent contractors are paid on a per job basis. Some occupations that are usually independent contractors are: artists, skilled trade, writers, advertising agents, and some marketing positions just to name a few.

More and more businesses are using independent contractors to help cut down their overhead costs for expenses like health insurance, life insurance, vacation and sick pay.

When receiving your 1099 form, your earned income will be the only amount listed; you will notice that there will not be any deductions taken for anything including federal taxes, state taxes, or social security. It is your responsibility, as the independent contractor, to pay your own tax on these earnings.

The most common form of 1099 is a 1099 MISC. This particular form can also have business deductions used if you have had business expenses to offset some of your tax liability. A business profit and loss form (Schedule C) must be filed with your 1099 to write-off some or all of your expenses associated with your business as an independent contractor.

There are other 1099 forms. A 1099 INT denotes the interest the government may have paid in a particular tax year. A 1099 G form would be used if you had received a tax refund from the government, not referring to an overpayment in taxes, as most tax refunds are issued

When the independent contractors file their tax returns it will be their responsibility to pay any taxes assessed on their income. Some independent contractors choose to pay a quarterly estimated amount to the IRS to make sure their taxes are covered.

One of the most common expenses for any business are supplies and other office expenses. But it is worthwhile to consider whether you are getting the full amount of the deduction you are entitled to take in a tax year for the expenses you incur.

Obviously, a good accounting system tracks all of your business expenses effectively, but most small businesses have purchases of some type that are either not recorded, overlooked, misclassified or otherwise left out of a full accounting for your taxable income.

This article isn’t meant to address the home office deduction per se, nor is it meant to primarily address office rent, furniture or equipment. Each of these expense items are significant and can be deducted elsewhere on your tax return, and there may be advantages to clearly separating them from your more basic office expenses. Rather, here we are considering the expenses you incur for routine supplies and other office expenses and whether they are deductible.

You are likely to buy things routinely that are used in your office and raise a question about their deductibility. What about coffee and its accompaniments, for example? Less expensive commercial art work? Supplies that are allowed to be used for personal purposes as well as business? How are these to be treated?

To be deductible from taxable income, an expense must be “ordinary and necessary” for the conduct of the business. The rule is further refined by the IRS for some clarity – the expense must be reasonable, and it must “directly pertain” to the operation of the business. It is not deductible if it is simply to make your job easier or more comfortable.

Obviously, this is a fine line of distinction and ultimately, it is up to you, as the taxpayer, to make the decision of whether to take an item as a deduction or to treat as a personal expense – knowing the IRS could later audit your expenses and reach its own conclusions about these items.

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