The most common forms of income reported on Form 1099-MISC is self-employment income and rental and royalty income. To calculate tax on 1099 self-employment, you must calculate both the self-employment tax and the increase to your taxable income. For rental and real estate 1099 income, you need to calculate only the increase to taxable income.
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Tax on Self-Employment Income
Identify and sum any amounts listed in boxes 3, 5, 6, 7 or 9 of Form 1099-MISC. This is your self-employment income. Complete Schedule C, including any other revenue that wasn't reported on a 1099-MISC in Part 1 and listing all eligible business expenses in Part 11. Subtract expenses from income to arrive at net income on line 31.
Multiply your net income from self-employment activities by the current self-employment tax rate. For 2014, the self-employment tax is 15.3 percent and includes both the employer and employee portion of Social Security and Medicare. If you're single and your net self-employment income exceeds $200,000, you must pay an additional 9 percent. For example, if your net self-employment income is $60,000, your self-employment tax is $9,180.
The IRS allows self-employed individuals to deduct half of their self-employment taxes. Calculate half of your self-employment tax and subtract it from your net self-employment earnings to calculate the increase to your taxable income. In this example, the increase would be $60,000 minus $4,590, or $55,410. Use the taxable income bracket chart to calculate the income tax on your earnings. For example, if you're single and your taxable
income was $36,901 before self-employment income, the first $52,449 of your self-employment would be taxed at the 25 percent bracket and the rest would be taxed at the 28 percent bracket.
Tax on Rental and Royalty Income
Add the amounts listed in boxes 1 and 2 of your Form 1099-MISC to calculate rent and royalty income. Include this figure along with any other rent and royalty income in Part 1 of Schedule E. List business expenses below income and calculate net income in line 26.
Calculate taxable income on net rent and royalty income. Unlike self-employment income, you don't have to pay self-employment taxes on rent and royalties. To determine the tax on your rent and royalty income, add the net rent and royalty income to your total taxable income and multiply it by the corresponding tax bracket rate. For example, if your taxable income was zero before considering $10,000 of net rental and royalty income, the first $9,075 would be taxed at 10 percent and the remainder would be taxed at 15 percent.
If you had a net loss from rental activities, calculate how much of the loss you can deduct in the current tax year. As long as you actively participate in the rental and your adjusted gross income is less than $100,000, you can deduct the first $25,000 of rental losses. You can carry over any remaining loss into future tax years and use it when the rental has net income. Calculate the deductible loss and record any loss carryovers on Form 8582.