A little 1099, a little W2. How do I file?

January 22, 2010 10:20 AM

A little 1099, a little W2. How do I file?

I work in the Los Angeles visual effects industry. In 2009, I did freelance work for about 1 week. It was for two different companies, totaling less than $2,500. For the rest of the year I was either unemployed or a W2 employee at another studio.

The freelance work was all performed onsite. They set the hours, I had a supervisor, etc. According to the IRS, I should have been an employee for those studios, yet I was paid as an independent contractor. This is incredibly normal in this industry, and I'm not looking to start a revolution or file a bunch of labor complaints (yet). But given my weird employment status, should I still file as an independent contractor? Or should I file the way the IRS probably thinks I should? If I file as an independent contractor, how will working onsite affect the kinds of business expenses and deductions I can take?

Also, when calculating my business expenses, do I need to figure out what they were for the exact days I freelanced? Or did I simply operate a business in 2009, and therefore I should calculate expenses based on the whole year? Is all of this even necessary if I only made $2,500 freelancing? Should I just go to an accountant and stop worrying?

posted by jmoneystl to work & money (13 answers total)

I think 1099 income goes under the line for "Other income." W-2 income goes in the clearly marked line.

My understanding is that if you claim business expenses, you're admitting that you were self-employed, and then you're going to have to pay SE tax. With only $2,500 in freelance income, I think you'd be better off just listing it as Other and paying the tax on that by way of your adjusted income.
posted by mudpuppie at 10:25 AM on January 22, 2010

Also, while I worked freelance for many years, you should definitely take an accountant's advice over mine. But for just $2,500, I'm not it would be worth paying one (for me, anyway).
posted by mudpuppie at 10:26 AM on January 22, 2010

Have you considered filing with software? Unless your circumstances are more unusual, try TurboTax or something similar. Cheaper than an accountant, less likely to give you misinformation than Metafilter.
posted by chesty_a_arthur at 10:43 AM on January 22, 2010 [1 favorite]

Yeah, I love me some turbotax. I think you're in a common enough situation where the software could take good care of you.
posted by craven_morhead at 10:47 AM on January 22, 2010

There's nothing unusual about your situation. All you have to do is put the $2,500 on a Schedule C, deduct whatever expenses you can from it (if any), and then put the final number on line 12 of your 1040. Proceed as usual from there.
posted by spilon at 10:58 AM on January 22, 2010 [1 favorite]

The IRS will see you as having 1099 income and W-2 income because those are the forms they received from your clients and employers. Regardless of how you think you should have been categorized, they will just compare the forms they received with the tax return you file, and if they don't match, flags will go up. Flags are bad.

It's possible that you have expenses you could deduct as business expenses. For that, you'd have to file schedule C, and you'd have to have believable expenses and records of them. For example, did you try to market yourself as a freelancer? Did that cost you anything? Do you have records of those costs?

Since the client required you to work on site, it's possible that you could deduct your mileage to their location. However, you would need to have recorded that mileage in a way that the IRS likes. If working on site required you to go out to eat, it's possible that you could deduct 50% of those meal costs, but you'd have to have records of them.

Also, I think you'll need to file schedule SE to record your self-employment income (basically to calculate your share of Social Security). And you probably should have filed your taxes quarterly, but in my experience the IRS forgives you if you don't do it the first year you have freelance income.

I'm not an accountant. I'm a small business owner. I recommend TurboTax for paying taxes and Deduct-It from Nolo Press for learning about business deductions.
posted by PatoPata at 11:06 AM on January 22, 2010

This isn't too complicated. Because you have 1099-MISC income, you must use schedule C for self-employment, but since it is less than $5000, you can use the simpler Schedule C-EZ. This is just a couple of lines. Put your $2500 from your 1099 on line 1, any expenses on line 2, and the net profit on line 3 and you are done. You carry this over to line 12 on your 1040 as part of your income. (You put your W-2 income one line 7).

Then you need to fill out Schedule SE which calculates your self-employment tax. You carry this result to line 57 of your 1040 for taxes.

Note that you may be able to deduct any premiums you paid for health insurance on line 29 up to the amount of self-employment net profit. You cannot deduct the premiums if you had health insurance paid by your W-2 employer at any time in 2009.
posted by JackFlash at 11:16 AM on January 22, 2010 [2 favorites]

I do this every year on Turbo Tax. The 1099 income will cut into your refund, but it's not complicated.
posted by jrichards at 11:18 AM on January 22, 2010

Just dropping in the nth TurboTax. Yeah, your taxes may not be complicated to the point where you think it warrants software, but it really, really makes it much easier. Plus, they have a free version. Not sure what the restrictions are, but the paid version is only like $30.
posted by InsanePenguin at 11:26 AM on January 22, 2010

Re: "Business tax."

The city of Los Angeles will indeed find out, and they will harass you about business tax. If you ignore it long enough, they will "estimate" for you that you made $200,000 in each of the last three years.

Really, this happened to me. However, there are actually several exemptions, one of which is for those who make under ~$50k in income from their business in a year. So don't worry about that, you'll just have to fill out a form telling them how much you earned and you're off.
posted by drjimmy11 at 12:11 PM on January 22, 2010

I've had this situation often and can vouch for both Turbotax and JackFlash's comment.
posted by deeaytch at 12:11 PM on January 22, 2010

(The above is in re: to what happens when you declare that you did freelance work in your home, in order to deduct "home office" expenses or for other reasons.)
posted by drjimmy11 at 12:12 PM on January 22, 2010

Another small business owner -- buy Turbo Tax for Business; follow directions. I don't think the simple TurboTax has the Schedule C you'll need...
posted by northernlightgardener at 7:43 PM on January 23, 2010