Anyone who is self-employed has likely received a Form 1099-MISC at some point in their career. Even if you are self-employed for a part of the year, you will receive a 1099-MISC from each client who paid you in excess of $600 during the year. Basically, this form is similar to a W-2, except it applies to those who work for themselves. On this form, you’ll need to pay close attention to the amounts reported in Box 7, Nonemployee compensation. Monies paid to you by clients will be stated in this section.
This document also indicates some additional payments that you may be required to report. Use the following information to help you determine what information is the most relevant when preparing your tax return.
- Box 1: Rents – Any rent paid to you by another party or person that totals more than $600 will need to be reported. Rents include monies for leasing office space, machinery, equipment, or farmland.
- Box 2: Royalties – Any licensing fees related to patents, trademarks, or copyrights are covered under royalties, which are reported when greater than $10.
- Box 7: Nonemployee Compensation – Taxable income for self-employed individuals is classified by the IRS as any money received by a company or person with whom you are not an official employee. Your client will report their payments in box 7, provided they paid you more than $600 during the year. For instance, if you provide freelance work such as computer services or writing, on a consistent basis, monies earned will be reported on the Form 1099-MISC and reported in Box 7.