February 4, 2012
2011 Tax return for contractors
In 2011, Tax return for contractors is a very versatile & important information. The reason being that due to loss of jobs & low salaried jobs, many people do other part time contractor-ship ventures for earning some extra money.
This job which you are doing under your own name without any salary is called self-employement & such earned income is called self- employement income. It is very important for it to be treated appropriately in tax return for contractors because the income if not reported or not reported appropriately, you can invite yourself a tax audit which can make you lose a bunch of hundreds or grands(depending on your case).
So, for all the contractors out there, here is some informtation about when you need to report self-employed income. If you are paid $600 or more for your work for any individual client, you should receive a Form 1099-MISC(explianed below) from your customer. Remember that you have to include this income in Schedule C of your your tax return. You can claim the deductions for your business expenses against your self employed income. And if your net earnings from self-employment(contractorship job) exceed $400, you will have to pay self-employment tax (for Social Security and Medicare) & this is ascertained on Schedule SE. Now, as a contractor you are paying double the percentage of tax which you pay as an employee, but you can deduct one-half of that SE tax as an adjustment to income on Form 1040.
Following are the two types of tax forms that are used in year 2011 tax return for contractors:
Form W-9 is used if you have figured out that the person you are paying is an independent contractor, the first thing you have to do is is to have the contractor complete Form W-9. With this form you request for Taxpayer Identification Number and Certification. This form can be used to request the correct name and Taxpayer Identification Number, or TIN, of the worker. A TIN may be either a Social Security Number (SSN), or an Employer Identification Number (EIN). The W-9 is supposed to be kept in your files for four years for future reference in case IRS has any questions from the worker.
A Form 1099 is used for various reasons, but it typically is given to an independent contractor as a record of the income that he or she received from a particular business.This is known as Form 1099-MISC. Other versions of the 1099 can be used to report different types of income, such as interest, dividends, real estate sale proceeds and debt cancellation. On a general 1099 form, such as the 1099-MISC, the income earned is noted, but there will not be any deductions for federal or state income taxes, Social Security or medical deductions. The 1099 form's recipient is not an employee of the business, so the business is obligated only to tender the income to the contractor without any deductions. Always remember, this 1099 income is also reported to the Internal Revenue Service (IRS). So if you receive 1099, always report it in your tax return.
So, all you contractors out there take these points into consideration for 2011 tax return for contractors, go ahead & report your 1099 income on your tax returns to avoid any tax audits.