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SEVEN THINGS YOU MUST KNOW ABOUT THE 1099 CALCULATOR 

The gig economy is running azure in the United States of America, with 44 million people either self-employed or at least working on a side hustle. The freedom of choice and time, coupled with the privilege of being one’s boss, is, indeed, one of a kind. However, the perquisites of being self-employed also come with a downside, mainly in taxation.

As a 1099 worker, you are responsible for filing your income and self-employment taxes and paying the estimated quarterly taxes. The multiple sources of income and the myriad of deductions further complicate the matter. However, it is in such a context that a tax calculator emerges as a beacon of hope. Are you wondering what a 1099 calculator is and how it can help you? If yes, then read ahead!

WHO IS A 1099 WORKER?

A 1099 employee is someone who is not considered an ’employee’ in the conventional sense. Instead, they are usually involved in freelancing, are independent contractors, or are self-employed. A 1099-worker does not receive wages or salaries, and a part of their income is not withheld as FICA. The Internal Revenue Service has set out classifications to identify 1099 workers. An individual is considered an independent worker if the payer has direct control over the work, not how and when it will be done. Some factors for the classification of a 1099 worker are –

  • Behavioral Control – A 1099 worker is free to work; no institution directs or controls them.
  • Financial Control – A 1099 worker uses their own instruments to decide the expenses sans any organizational management.
  • Relationships of the Parties – Some pertinent elements, such as the earning of benefits, possibilities of an indefinite partnership, etc., determine the status of a 1099 worker.

WHAT ARE THE TAXES THAT A 1099 WORKER OWES?

In simple words, we can understand self-employment tax as a combination of Social Security and Medicare taxes. Unlike W-2 or salaried employees who have a portion of their wages automatically withheld, 1099 workers need to file their income taxes. The self-employment tax rate is 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare. It is important to remember that the Medicare tax applies to all your income, including wages, tips, etc. However, the Social Security Taxes only apply to the first USD 142800 of your income. Thus, if you earn USD 150000, the self-employment tax for the last USD 7200 will be only 2.9 percent. Furthermore, as a self-employed person, you can even end up paying more above a certain threshold, as there is an additional 0.9 percent of Medicare Tax. The threshold impinges upon the filing status –

  • Single – USD 200000
  • Married filing jointly – USD 250000
  • Married filing separately – USD 125000
  • Head of household – USD 200000
  • Widow or widower with dependent child – USD 200000

Moreover, another crucial dimension of 1099 taxes is that the threshold does not include only your self-employment income. It also includes any wages, tips, or income you have earned from a regular job. So, for instance, if you are single and earn USD 200000 at your day job and make another USD 50000 through your side hustle, the total income will be around USD 250000. Thus, you will have to pay the extra 0.9 percent on the last USD 50000 income as a single filer. 

Thus, self-employment is another payment that 1099 workers have in addition to their income taxes. The main difference between income and self-employment tax is that the former is assessed on your total income for the year, whereas the latter pertains to your ‘business’ income for the year. You can reduce your income tax through itemized or standard deductions, adjustments, and tax credits. On the other hand, self-employment taxes are minimized through business write-offs and tax credits. Some of the essential deductions for self-employment taxes include –

  • Home office Deductions
  • Vehicle Use Deductions
  • Rent Deductions
  • Business Loan Interest Deductions
  • Education Deduction
  • Startup Deductions
  • Meal Deductions
  • Business Travel Deductions
  • Health insurance premiums and much more 

Thus, managing 1099 taxes is similar to navigating a labyrinth; therefore, a 1099 tax calculator becomes indispensable.

HOW TO PAY 1099 TAXES

If you think you owe USD 1000 or more to the federal government as self-employment taxes, you cannot wait until the end of the year to file your tax returns. Instead, you have to make estimated tax payments every quarter. Therefore, we can understand estimated taxes as a mechanism facilitating the ‘pay-as-you-go’ process of income taxes for non-W2 taxpayers. Thus, estimated taxes can be defined as a tax arrangement wherein individuals pay taxes in proportion to the income generated from self-employed ventures. 

A recent study reveals that 25 percent of freelancers skip paying their quarterly taxes, a misstep with several repercussions. First, self-employed persons cannot wait until April to file their taxes and pay them in one lump sum. As business owners, freelancers, and independent contractors do not have their taxes withheld from paychecks in a timely fashion, like regular salaried workers, they are mandated to pay estimated taxes, including earned income, rental income, capital gains, dividends, etc. 

In addition, Internal Revenue Service requires the estimated taxes to be paid every quarter by those whose income is not subject to withholding, such as freelancers, LLCs, independent contractors, etc.

  • The first quarter for payment is the three calendar months, from January 1 to March 31
  • The second ‘quarter’ is two months long, from April 1 to May 31
  • The third ‘quarter’ runs from June 1 to August 31
  • The last and the fourth ‘quarter for payment of estimated taxes cover the final four months of a year

It is essential to remember that as a taxpayer, you have to file the usual paperwork for the year and pay the balance dues or request reimbursement for an overpayment. Furthermore, if your estimated tax payment does not equal at least 90 percent of the actual tax liability, the IRS assesses interests and penalties against the delinquent amount. Therefore, the timely and accurate calculation of estimated taxes is pivotal. Hence, taking the help of a tax calculator becomes all the more critical. 

SEVEN THINGS YOU SHOULD KNOW ABOUT A TAX CALCULATOR 

Statistics suggest that 75 percent of freelancers and independent contractors overpay their quarterly taxes, as they do not consider deductions. Thus, it is in such a context that a tax calculator comes to the rescue. Now let us gauge the seven things every 1099 worker should know about a tax calculator.

  1. A tax calculator is an AI-driven tool devised to make taxation easy-breezy for 1099 workers.
  1. Reliable 1099 calculators, such as those of Flyfin, have affordable packages for users’ convenience.
  1. A tax-calculating tool can take away 98 percent of your tax filing work.
  1. A tax calculator helps 1099 workers keep the stress of deductions and estimated payments at bay; they can focus on more pressing needs, such as handling their business.
  1. Tax calculators produce results that are 100 percent accurate. Thus, the possibility of penalties and fines is negligible.
  1. A tax calculator helps you save money.
  1. An AI-driven tax calculator strengthens the financial liberty of 1099 workers. 

Lastly, let us look at some of the crucial benefits of a tax calculator. 

BENEFITS OF TAX CALCULATOR FOR 1099 WORKERS 

Some of the veritable benefits of the tax calculator for 1099 workers are –

  • Saving of Money – A tax calculator can help a freelancer save up to USD 3700 on average.
  • Saving of Time – Freelancers and independent contractors do not have to spend hours computing the relevant tax deductions as a calculator can do the same in minutes.
  • Immaculate Accuracy – The possibility of human errors in calculating deductions is eliminated with the help of a deductions calculator.
  • Affordability – An AI-powered tax deductions calculator is much more affordable than a professional tax consultant.

WRAPPING IT UP

Managing taxes is, indeed, a number for 1099 workers. However, with the help of tax calculators, such as Flyfin’s AI Tax Engine, the process becomes more accessible. In today’s day and age, the privilege of working for oneself should not come with the stress of burdening tax filing, and thus AI-driven taxation tools emerge as the knight in shining armor. From filing your annual returns to calculating your 1099 tax deductions, a calculator can help you with almost everything. 

Uneeb Khan
Uneeb Khan
Uneeb Khan CEO at blogili.com. Have 4 years of experience in the websites field. Uneeb Khan is the premier and most trustworthy informer for technology, telecom, business, auto news, games review in World.

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