1099 and WFH Deductions

[aubreylausinhang]

Hi, I became a 1099 contractor mid-year this year and have been making quarterly estimated payments. Since I don't want to accidentally owe taxes, I have not been taking deductions into account when I made those payments.

I have some questions about what year-end deductions I am eligible for and how to report them comes April.

1) How do I know if I am eligible for QBI deductions? I am working as a 1099 independent contractor researcher through a vendor company that does my billing for my client, but I am not considered an employee of the vendor company. Do I still qualify as a sole proprietor? 

2) What are the documentations that  I need to provide for WFH deductions? (rent corresponding to the office space, internet expenses) Do I provide these at the time of filing or only in the case of audit? Can I file these deductions on turbotax?

Thanks!

[Jackstar221]

Hi,

1)Here is an article regarding the QBI deduction. https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-cuts-jobs-act/qualified-business-inc... 

This deduction applies to Schedule C filers (sole proprietorships and other self-employed businesses), LLCs, partnerships, S corporations, estates, and trusts. Certain rental enterprises may also qualify. Corporations are not eligible because they received their own tax breaks under the TCJA.

That said, not every eligible business automatically qualifies for the deduction. In particular, some types of service businesses (SSTBs) are disqualified once the taxable income on the return exceeds $220,050 ($440,100 if filing jointly).

This deduction is only available to businesses. You must have a business to claim the QBI deduction.

2)Here is an article regarding the home office deduction: https://ttlc.intuit.com/community/forums/replypage/board-id/asktheexperts/message-id/22356 

You can use TurboTax to add a home office deduction. Just go to federal-wages & income-self employment-then add the home office as an expense. You can claim this deduction at the time of filing. If it is rent you are paying for your personal house, that is not a deductible expense. If it is rent for your business property, you can deduct that as a rent expense. You can also claim the internet expenses. Yes, you can file these deductions on TurboTax. Feel free to call us at 1-800-446-8848 if you would like us to talk you through the home office deduction.

Thank you,

John

CPA

[aubreylausinhang]

Thanks for your detailed reply, John. 

Re: QBI, what counts as having a business? Are independent contractors not the same as a business with a sole proprietor? Do you have to be an LLC to qualify? 

Thanks.

[bkaytaxes]

Greetings @aubreylausinhang !

Congratulations on this new journey and looks like you are starting off on the right foot!  The IRS is a pay as you earn system so ensuring your pay taxes quarterly is a great way to avoid paying extra taxes at the end of the year and avoiding any penalties for underpayment.  Here is the Turbo Tax estimator in case you would like a tool to use for future to make sure you are on track: TaxCaster   This tool also takes deductions into consideration so you don't over pay as well!

Deductions can change from year to year, there are some standard ones that are adjusted yearly for inflation and others that come and go based on changes in tax laws.  Turbo tax will ask you questions to ensure you are covered.  The best way to keep on top of deductions is to follow the IRS updates page  IRS Tax Updates  and also we are here year round to help you see how changes may impact you!

1.  If you are not considered and employee your would be a sole proprietor and receive a 1099 at year end showing how much your were paid for the year.  To know if you qualify for QBI you would need to meet the following requirements.   Most taxpayers that are self employed or own businesses qualify if total income is under a certain amount (for tax year 2022 that amount was $170,050 for single taxpayers).  Turbo Tax will ask you a few questions and determine if you are eligible and even calculate the credit for you!  Here is an article that provides more details:  QBI 

2. WFH deductions can be filed in Turbo Tax.  The software will ask you if you worked from a home office and proceed to ask about your expenses.  You don't need to submit the documentation to file your return, but you would need to keep them in your tax files in case of an audit (like you would for any other items reported on your tax return).

Wish you all the best in your business adventures and please reach out if you have more questions, we are here to help you!