By now, you should have most of the tax statements from employers, banks, and investment companies you need to complete your 2023 tax returns.
But if you received any additional income doing freelance work or selling items online, you might still be missing certain 1099 statements you’ll need to accurately report this income.
The $600 question
The rule of thumb says that companies don’t need to issue certain 1099 statements to taxpayers for total payments of less than $600.
Since many freelancers and side hustlers might not reach this $600 threshold with any one client, they might think they’re off the hook.
But this isn’t so. Self-employed workers should report all of the payments they receive from customers and clients, regardless of whether they receive a 1099 statement or not.
Income you may need to chase down on your own
Some employers or vendors you received payments from may not issue 1099s. Then it becomes your job to get the right numbers on your own.
Undependable or defunct clients
Many companies—particularly smaller startups—don’t have robust accounting processes in place to make sure they mail 1099-NEC (Nonemployee Compensation) statements to independent contractors or make them available electronically by the annual January 31 deadline.
If you haven’t received a 1099-NEC from a client, reach out to them and ask them to email a PDF version to you as soon as possible.
If one of your clients went out of business last year, they’re technically still on the hook to get this statement to you. If they no longer have a payroll system or accountant who generates these statements, they can simply print out a blank 1099-NEC statement and fill out the information manually. If they do this, make sure they include the employer's name, address and Tax ID number.
Income from online marketplaces and payment vendors
If you sold more than $20,000 worth of goods on Ebay, Amazon or any other online marketplace or received payments of $20,000 or more sent via Paypal, Venmo or other online payment platforms in a single year, you’re supposed to receive a 1099-K (for Payment Card and Third Party Network Transactions) statement from each vendor.
You may not have received 1099-K statements even if you received more than $20,000 in payments. But you should report this income anyway. This means you may need to manually search through transaction records for each marketplace and payment vendor to track down these payments.
Undocumented income
There may be situations where there is no paper trail for self-employed income. For example, if you’re a wedding photographer who gets paid in cash or you sell your pottery at crafts fairs, you won’t get tax statements from anyone.
In that case, it’s your job to keep track of all of this “under-the-table” income and report it.
Reporting this income
If you’re self-employed or earn money from a side gig, you’ll want to report this income on IRS Schedule C, which you’ll file with your annual tax returns. This schedule is used to report profits or losses from your business. You can reduce your overall profits by deducting qualified business expenses.
You’ll also need to fill out IRS Schedule SE, which helps you figure out how much self-employment tax (i.e., Medicare and Social Security taxes) you may owe on your profits (calculated on Schedule C).
If you have questions about these and other tax-related issues, consider meeting with a qualified tax professional.
This material has been provided for general informational purposes only and does not constitute tax, legal or investment advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a qualified tax professional and/or financial advisor regarding your situation.
This article was authored by Michael Flaherty and Jeffrey Briskin. Michael is a senior financial advisor with Canby Financial Advisors, a SEC-registered investment adviser. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or training. Michael can be reached at 508.598.1082 or mflaherty@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
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