How to Report Self-Employment Income without a 1099
How to File Income Without a 1099 | A Comprehensive Guide
Being a freelancer can be an extremely tough profession. There’s little guidance, and most of us don’t have peers to rely on. Generally, when freelancers get paid, they should receive a 1099 Form from the client that summarizes how much they were paid, but clients don’t always send out their 1099s for a variety of reasons, so how do you report self-employment income without a 1099? Here’s the short answer: you still report the income, no matter the payment amount or method even without a 1099. You do this by entering the amount in Line 1, “Gross Receipts” on your Schedule C of the 1040 Form.
Let’s explore this topic in detail.
IRS Requirements for Reporting Self-Employment Income
Despite what you may hear, the IRS treats any income, self-employed or not, as taxable. The rule also isn’t specific to how the payment is made. That means whether you made the money being a freelancer, selling a car, or got paid to help a friend, it’s all income that should be reported. You certainly won’t receive a 1099 Form every time you receive money, so it’s your responsibility to keep track of any money you make. Yes–that includes cash payments.
Step-by-Step Guide for Reporting Self-Employment Income:
Using a tax software like FreeTaxUSA, or TurboTax, you will follow a series of questions that help you file your taxes. Here’s what that series of questions might look like:
“Did you receive any income not summarized on Form W-2 or otherwise?” Answer ‘Yes’
“Did you receive Form 1099 for this income?”
Depending on whether you did or not, answer accordingly. You’ll be doing this multiple times if you received multiple 1099s, or have some income that received a 1099 and some that did not.If you answer ‘Yes’ to the previous question, you will be prompted to enter the 1099 information. This info and amount will then automatically flow to a form called Schedule C, which details business/freelancer/side income and expenses
If you answer ‘No’ to the previous question, you will still be prompted to enter the income, but the information just won’t be backed up by a 1099. This amount will also then just flow to Line 1 “Gross Receipts” on your Schedule C
“Do you have additional income not reported on Form W-2 or otherwise?”
Depending on if you have another 1099 you need to report or another income source, you would answer accordingly and go through the above process again
Receiving Cash Payments | Do I Have to Report It?
Yes–remember, all income is typically taxable income. Whether it’s paid with cash, Venmo, PayPal, or check, all your income should be reported. This also applies even if you have self-employment income without receiving a 1099.
How would the IRS know about cash payments?
The short answer is–they wouldn’t. So what happens if you don’t report cash income or income without a 1099? You may be subject to heavy penalties on taxes that you needed to pay, plus any interest on that amount of time you were delayed in paying it.
In addition, you will be audited and continue to be audited in future years, which means you will be constantly questioned on your finances, and need to be even more diligent in recordkeeping.
To be clear, this is NOT a state you want to be in. Whatever tax liability you think you’re avoiding by not reporting cash income, or income that didn’t have a corresponding 1099, is not worth being on the IRS’s radar.
How to Keep Track of Freelancer Income | Tips and Tricks
Our suggestion for freelancers is to make it easy for yourself. To set things up right, make sure you have a separate business bank account that you use exclusively for your freelancing practice to both receive and pay money.
Why is a Business Bank Account Important?
This is extremely important, because it separates your finances from any other transactions that could have nothing to do with your business. You might think it would be easy to know what’s business versus not, but as transaction volume increases, you can quickly lose track. Also, as time passes, you may not remember the details of every transaction.
In addition, when a business bank account is paired with bookkeeping software, you can automate 99% of transactions without ever remembering to do anything!
How to use QuickBooks Online as a Freelancer
We suggest using software like QuickBooks Online or an alternative. With bookkeeping software, you can directly connect your bank accounts and your credit cards to the platform, and never worry about recordkeeping again. Let’s visualize this in practice with bookkeeping software vs without:
Income generating transactions:
With linked bank accounts and credit card using bookkeeping software:
Transaction: You receive $5,000 from a client from work you provided
Action: Deposit $5,000, then nothing. The $5,000 goes into your bank account, which is connected to your bookkeeping software so it gets recorded automatically. At regular intervals, or when you file taxes, you can “categorize” this $5,000 as income.
Overall: Not much to do, easy organization, very little room for error
Without bookkeeping software:
Transaction: You receive $5,000 from a client from work you provided
Action: Deposit $5,000, then print/record a physical sales receipt or enter this information into a spreadsheet then store somewhere. At the end of year, tally up all your income from the stored location to file taxes.
Overall: Very tedious, easy to forget to record, easy to lose the records, easy to make a mistake like a typo
Expenses:
With linked bank accounts and credit card using bookkeeping software:
Transaction: You spend $500 on your credit card for an office desk
Action: Nothing. $500 expense and corresponding details show up on the credit card statement, which is linked to your bookkeeping software. You later categorize this $500 as “office supplies”, or “furniture”. It then gets summarized as an expense line item on Schedule C during tax time.
Overall: Not much to do, easy organization, very little room for error
Without bookkeeping software:
Transaction: You spend $500 on your credit card for an office desk
Action: Keep the receipt so that you can record the date and amount either manually or in a spreadsheet. Then, remember to pull these records back up during tax time so that you may enter it manually one-by-one (you will have other expenses too).
Overall: Very tedious, easy to forget to record, easy to lose the records, easy to make a mistake like a typo
What is a 1099? | Should All Freelancers Receive a 1099?
1099 Forms are informational forms that clients will send you to summarize how much they paid you in a year. Generally, freelancers should receive a 1099-NEC form at the end of year, if they were paid $600 or more from the client. This means that it’s very likely freelancers receive multiple 1099s.
Reporting Self-Employment Income | What to do with 1099 Forms
After receiving 1099s, freelancers use these forms to file their income at the end of year. Generally, this income goes on your 1040 form. For example, if you received two different 1099s from two clients in the amounts of $5,000 and $2,500, you would report $7,500 in gross receipts on your Schedule C, which carries over to your 1040.
The Schedule C is just an additional detailed breakdown of your income and expenses as a freelancer–it flows to your 1040, which would include other sources of income/expenses as well (like selling stocks for a gain).
Tips and Tricks for Filing and Reducing Taxes
When it comes time to file taxes as a freelancer, follow these tips for success:
Be sure to use a tax filing software like TurboTax or FreeTaxUSA. This will make the process much easier and you won’t have to deal with physical forms
Ideally, you also have a bookkeeping software like QuickBooks Online, Freshbooks, etc. that are linked to your bank accounts and credit card accounts so you can easily categorize your transactions
Take those categorized transactions and populate them in Schedule C on your 1040 Form
Maximize your tax deductions and write-offs as a freelancer to reduce tax liability. Common deductions include:
Office supplies (like a desk or chair)
Software (like Adobe Creative)
Health insurance
Travel for conferences, client meetings, trainings
Advertising costs
FAQs:
How do I prove self-employment income without a 1099?
To prove self-employment income without a 1099, you can use a Profit & Loss statement from your bookkeeping software, or download bank statements from your business bank accounts to show a record of income
Do I have to report income if I don't get a 1099?
Yes–all income regardless of amount and payment method should be reported as taxable income. To do so, make sure you add any cash payments or otherwise into your “gross receipts” on Schedule C.
What do I do if I have income but no 1099?
If you did not receive a 1099-MISC or NEC, you still have to report the income. Use a bookkeeping software or spreadsheet to keep track of any income you made and did not get issued a 1099. Then, add those amounts and include them in your “gross receipts” on Schedule C.
