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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Self-Employment Income Tax
Self-employment income listed in boxes 3, 5, 6, 7 or 9 of Form 1099-MISC. To begin computing self-employment tax, 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 net income from self-employment activities by the current self-employment tax rate. For 2018, the self-employment tax is 15.3 percent, which includes both the employer and employee portion of Social Security and Medicare. For example, if net self-employment income is $60,000, the self-employment tax is $9,180.
For single taxpayers, if net self-employment income exceeds $200,000, an additional 0.9 percent tax kicks in. The same applies for joint filers with income exceeding $250,000.
The IRS allows self-employed individuals to deduct half of their self-employment taxes. Calculate half of the self-employment tax and subtract it from net self-employment earnings to calculate the decrease to taxable income. In this example, the taxable income would be $60,000 minus $4,590, or $55,410. Use the taxable income bracket chart to calculate the income tax on earnings. For 2018, a single taxpayer with taxable income of $36,901 would face a 10 percent tax rate on the first $9,525 of income, while the remainder would be taxed at a 12 percent rate.
Rental and Royalty Income Tax
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, there is no self-employment taxes on rent and royalties. To determine the tax on rent and royalty income, add the net rent and royalty income to the total taxable income and multiply it by the corresponding tax bracket rate. For example, if 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.
The first $25,000 of net losses from rental activities can be deducted in the current tax year for active participants with adjusted gross income of less than $100,000. Any remaining loss can be carried over into future tax years and used to offset net rental income. Calculate the deductible loss and record any loss carryovers on Form 8582.