1099 deduction questions

[dude1]

What is the name of your state (only U.S. law)? Illinois

In the past I have always had to take the standard deduction (10k+) and wasn't able to itemize (no mortgage, etc.) on my 1040. I am entering into a 1099 with a company (never done a 1099 before) and had questions regarding 1099 business expense deductions. Are the 1040 deductions and 1099 deductions separate groups? Or if i have to take the standard deduction on my 1040, can I still deduct my 1099 expenses from my 1099 taxes?

As an example:

1099 income: $100,000
1099 taxes: $15,000
1099 related expenses (cellphone, mileage, etc): $5,000

I just made up the taxes and expenses for illustration purposes... so my question is... Would my total tax liability regarding the 1099 be $10,000 ($15k taxes minus $5k expenses)? So I would get a $5,000 refund when I file at the end of the year, providing I sent in quarterly estimates of $15k total over the course of a year?

Also, again will taking the standard deduction on my 1040 have any bearing on my 1099 deductions?

thanks so much for your help!!!

[anteater]

Also, again will taking the standard deduction on my 1040 have any bearing on my 1099 deductions?

No. Your business-related expenses and standard/itemized deductions are two different matters.

You will need to file Schedule C or C-EZ for your self-employment income. (In your case which of those schedules probably depends upon the amount of your expenses.) Your expenses are subtracted from your self-employment income on one of those schedules and then is entered on the "Business income or (loss)" line on your 1040 (Line 12 in 2008) where it becomes part of your Adjusted Gross Income.

Your standard deduction remains a deduction to AGI.

You might want to check out the IRS page for the self-employed:
[url=http://www.irs.gov/businesses/small/selfemployed/index.html]Self-Employed Individuals Tax Center[/url]

[LdiJ]

You also should be aware that you will be paying self employment taxes as well as regular income taxes on your net earnings.

[dude1]

Just to clarify (I'm not that good at tax stuff), which one of the statements is correct...

1. For every expense I have related to the 1099, I can subtract that from the actual tax owed? For instance, if I have $5k in expenses, then I would get a $5k actual credit towards taxes. So my taxes/expenses would have a 1:1 ratio... Any money I spend on valid expenses, I will then recoup the full amount by saving on taxes?

OR

2. For every expense I have related to the 1099, I can subtract that from my income, only lowering my tax liability? For instance, if I have $5k in expenses, then I wouldn't have to pay taxes on that $5k (but that would only save me a taxable percentage of my expenses). So for any money I spend on valid expenses, I would only recoup a fraction (my tax rate) of the amount spent on expenses?

I hope this makes sense... I am trying to figure out which one of the 2 answers is correct, because it is thousands of dollars difference in my money.

thanks again!

[anteater]

Number 2.

Take a look at Schedule C or C-EZ:

[url]http://www.irs.gov/pub/irs-pdf/f1040sc.pdf[/url]

[url]http://www.irs.gov/pub/irs-pdf/f1040sce.pdf[/url]

[dude1]

that is what I was afraid of... so essentially, any expenses you incurr, you will be getting a X% discount on (depending on your tax rate)... right?

thanks for the answer!

[tranquility]

I suggest a professional tax preparer this year.

[LdiJ]

Originally Posted by dude1

that is what I was afraid of... so essentially, any expenses you incurr, you will be getting a X% discount on (depending on your tax rate)... right?

thanks for the answer!

I agree with Tranq...you obviously do not understand the core basics of accounting. Until you understand at least the very most basic principles, you should not be doing your own tax return.

However I will try to explain a couple of things.

When you are in business for yourself (which you are if you are receiving a 1099) your net income is the total money you receive, minus the expenses that you must incur to generate that income.

So, if your gross income is 100,000 and you have 20,000 of expenses your net income is 80,000.

Its not a question of percentages or discounts. Its a question of how much net income did you have.

In your example you mentioned 100,000 in income and 5,000 in expenses. That would be an extremely unusual situation. There are very few self employed people who could generate 100,000 in income with only 5,000 in expenses.

That is another reason why you NEED a tax professional this year, at least. You not only need to have someone explain to you how things work...using your actual numbers, but you also need someone to explain to you what is and is not a valid expense.