Contributed by: ChristopherT, FreeTaxUSA Agent, Tax Pro
This year you started a job as a self-employed contract worker and received a 1099-NEC or 1099-MISC. While doing your taxes, you see that you need to complete Schedule C, Profit or Loss from Business, which concerns you because you don’t own a business.
The IRS considers consulting or contractor income as business income that needs to be entered on a Schedule C. You don’t need to have an official business to report your income on a Schedule C. If you have self-employment income from a Form 1099-NEC or 1099-MISC, you'll report the income on Schedule C.
How to know if I’m an independent contractor?
Generally, if you receive a W-2 and receive a paycheck from a company, you are considered an employee. However, if the business pays you and doesn’t withhold taxes such as Social Security and Medicare, or they’ve provided you with a 1099-NEC or 1099-MISC, then it is likely you are considered a contractor.
The IRS has a series of rules to help you determine your employment status:
- Who controls your behavior at work? (What the employee does, how the employer does their job)
- Who controls the financial aspect of your work? (How do you receive payment, are expenses reimbursed, who buys necessary supplies)
- What kind of relationship is it? (written contract, specific benefits such as PTO, medical coverage, etc.)
For more specific information regarding the IRS requirements for employment status vs. independent contractors, please review the IRS Independent contractor (self-employed) or employee? webpage.
To record 1099-NEC or 1099-MISC income with your tax return, follow these steps:
- Sign in to your account at www.freetaxusa.com
- Follow this menu path: Income > Business Income > 1099-NEC/1099-MISC.
- Enter information from your 1099-NEC/1099-MISC and continue through the screens.
If you received a 1099-K follow this menu path: Income > Business Income > 1099-K Income.
Select one or more payors and carefully answer the question about the source. For independent contractors, the software will recommend using Schedule C. You’ll either add the income to an existing Schedule C or ‘Add a Business’ to include the income. On the Your Business Page, select or ‘edit’ Income and Returns under Income. Proceed forward and you’ll come to the 'Tell us about your income' screen with a box to report the Gross Receipts from the 1099-K.
Information entered in these areas will be used to complete Schedule C and will be included with your federal tax return.
Conclusion
One of the benefits of filing Schedule C is you may deduct expenses related to earning contractor income. For example, if you work from a home-office or drive a car to earn that income, you may deduct business expenses from that income.
