How to Report Income as a Contractor or Freelancer for Taxes?

Thanks for the info! Quick question - does the person paying me have any obligation to issue a 1099 if they're just paying me in cash? I've done about $2,800 worth of work for one person but it's been all cash payments.

Yes, technically anyone who pays a contractor $600 or more in a year should issue a 1099-NEC form. However, many cash-paying clients don't do this properly. The important thing to understand is that you're still legally required to report all income regardless of whether you receive a 1099 or not. Even if your client doesn't issue a 1099, you should still report every dollar you earn. Keeping good records will help you accurately report your income and protect yourself in case of an audit.

Did it help you figure out if you needed to make quarterly estimated tax payments? That's what I'm struggling with right now with my side gig income.

How does this actually work? Do you have to manually input every transaction or does it connect to your accounts somehow? I'm getting paid through multiple methods (some cash, some Venmo, some PayPal) and tracking it all is driving me crazy.

It did actually help with figuring out quarterly payments! It looks at your income pattern and tells you when you need to start making those payments and how much you should be setting aside. Saved me from a surprise tax bill. For your question about how it works - you can do either manual entry or connect accounts. I connected my digital payment apps (like Venmo and PayPal) and then manually added my cash transactions. The system is smart enough to help categorize everything and distinguish between personal and business transactions. It was especially helpful for separating all my mixed-use expenses.

Wait, you actually got through to a real IRS person? I thought that was impossible these days. How much did this service cost? Seems too good to be true honestly.

I'm very skeptical about this. Why would you need a service to call the IRS? Couldn't you just keep calling yourself until you get through? Also, why would the IRS give you different information than what's on their website?

The service doesn't cost that much compared to how valuable my time is - I spent hours trying to get through on my own with no luck. It's especially worth it if you have complex questions that aren't easily answered on the IRS website. I was skeptical too! I tried calling multiple times over several days, always hitting the "high call volume" message and getting disconnected. The difference is they have some system that keeps dialing for you and gets in the queue. The official IRS website has good general information, but when you have specific questions about your situation (like exactly what records you need for cash payments as a new freelancer), talking to an agent gives you much more clarity and peace of mind.

That's really good to know! Should I deposit the cash after each job? Or is it better to do it weekly/monthly? I've been keeping it in an envelope and was planning to deposit it all at once, but it's already around $1,900.

Regular smaller deposits are definitely better than one large deposit. Weekly or bi-weekly deposits are what I do now. Anything over $10k at once automatically triggers reports, but even smaller amounts can raise questions if they seem unusual for your normal banking pattern. A $1,900 deposit might not trigger anything, especially if you've been working and it's reasonable for your income level, but establishing a pattern of regular deposits from your ongoing work is the safest approach. Just make sure you keep good records of where each deposit came from so you can explain if needed.

Is that the same as writing off business expenses? I've been tracking miles driven, home office space, and supplies. Is this QBI thing different or in addition to those?

The QBI deduction is completely separate from your regular business expense deductions! You get to take both. Business expenses (like your miles, home office, and supplies) reduce your net profit on Schedule C, and then the QBI deduction gives you an additional 20% deduction on that net profit amount. So if you made $10,000 in freelance income and had $2,000 in business expenses, your net profit would be $8,000. You'd pay self-employment tax on that $8,000, but then you might also get to deduct 20% of that $8,000 (so $1,600) from your regular income tax. It's basically a bonus deduction for being self-employed. There are some income limits and other rules, but for most freelancers it's a nice tax break on top of your regular expense deductions.

This is super helpful, thanks! I'm already feeling overwhelmed just thinking about quarterly payments. How do you figure out if you're going to owe $1,000+ in taxes? Is there a simple way to estimate this as I go, or do I need to wait until I have a full year of income to calculate? Also, when you mention keeping receipts for business expenses - does that include things like buying coffee while working at a client's location, or parking fees when I go to job sites? I want to make sure I'm not missing deductions but also don't want to go overboard tracking every little thing.

Great questions! For estimating quarterly payments, a rough rule of thumb is to set aside about 25-30% of your net freelance income (after business expenses). So if you're making $1,000/month net, you'd likely owe around $250-300 in taxes on that income. The IRS wants quarterly payments if you'll owe $1,000+ for the year, so you'd hit that threshold around $3,500-4,000 in annual net income. For business expenses, yes to both coffee and parking fees if they're truly business-related! Coffee while working at a client site or networking meetings counts. Parking/tolls to get to job sites definitely count. The key is that it has to be "ordinary and necessary" for your business. I'd suggest tracking everything at first - you can always decide not to claim smaller items later, but you can't claim expenses you didn't track. Even $5 coffee meetings add up over a year. Just make sure to write on receipts what the business purpose was (like "client meeting" or "job site parking"). A simple note on your phone right after the expense works too. The important thing is being consistent and having documentation if the IRS ever asks questions.

That's such a smart tip about the separate business account! I wish I had thought of that earlier. I've been mixing everything in my personal account and it's becoming a nightmare to sort through. Quick question - when you opened the business account, did you need any special documentation since you're a sole proprietor? I'm worried about having to file a bunch of paperwork or get an EIN just to open an account. Also, do you literally deposit every single cash payment there, even the small $50-80 jobs? I'm curious how strict you are about keeping everything separate. This thread has seriously been a lifesaver for figuring out this whole freelancing tax situation. Thanks everyone for sharing your experiences!