What is the difference between 1099-NEC and 1099-K?

1099-NEC reports non-employee compensation paid to you (typically $600+). 1099-K reports payment card and third-party network transactions (NJ threshold is $1,000, which is stricter than the federal threshold). Be careful not to double-count income that appears on both.

Can I use the standard mileage rate if I used actual expenses last year?

There are restrictions on switching. If you previously used actual expenses and claimed MACRS depreciation or Section 179 on the vehicle, you generally cannot switch back to the standard mileage rate for that vehicle.

What is the QBI deduction and does NJ allow it?

The Section 199A QBI deduction allows eligible self-employed taxpayers to deduct up to 20% of qualified business income on their federal return. NJ does not allow this deduction - your NJ taxable income will be higher than your federal taxable income.

How do I handle the hobby loss rules?

If your business shows losses for multiple years, the IRS may apply the Section 183 hobby loss rules using a 9-factor test evaluating profit motive. If classified as a hobby, income is reported but no losses can be deducted. Having a profit in 3 of the last 5 years creates a presumption of business activity.

Self-Employment Tax Checklist - Schedule C Documents | Monaco CPA

Income Documents

All 1099-NEC forms with amounts verified
All 1099-K forms (gross amounts - NJ threshold is $1,000)
All 1099-MISC forms (rents, royalties, other payments)
Business bank statements or bookkeeping summary for income verification
Records of income NOT reported on any 1099 (cash, Venmo, Zelle, direct deposits)
All W-2 forms (if you also have wage income - needed for SS wage base coordination)
Prior year tax return for AGI e-file validation and Schedule C comparison

Business Information

Business activity code (NAICS) matching your actual activity
Business name and EIN (if applicable)
Accounting method: cash vs. accrual (must be consistent with prior year)

Expense Documentation

Receipts and records for each expense category (receipts, bank statements, invoices)
Meals receipts with business purpose noted (50% deductible)
Contract labor payments - if any single payee received $600+, confirm a 1099-NEC was issued
Supplies vs. assets: items over $2,500 may need to be depreciated
Legal and professional services invoices
Insurance premiums (business insurance, not health - health goes on Schedule 1)

Vehicle and Mileage

Choose method: Standard Mileage Rate ($0.70/mile for TY2025) vs. Actual Expenses
Mileage log with dates, destinations, business purpose, and miles driven
Business-use percentage: business miles divided by total miles
Note: commuting miles are never deductible
Vehicle information: date placed in service, total miles, business miles

Home Office

Confirm regular and exclusive use for business (IRC Section 280A)
Choose method: Simplified ($5/sq ft, max 300 sq ft = $1,500) or Regular (Form 8829)
If Regular Method: square footage of office and total home
If Regular Method: utility bills, mortgage interest/rent, insurance, property taxes

Self-Employment Tax and Health Insurance

Quarterly estimated tax payment receipts (federal and state)
Health insurance premium statements if self-paid (deductible on Schedule 1 Line 17)
Confirm spouse does not have an employer plan available (affects eligibility)

NJ-Specific Items

Note: NJ does not allow the QBI deduction or the 50% SE tax deduction
Note: NJ Section 179 cap is $25,000; NJ does not allow bonus depreciation
NJ estimated tax payment records ($400 threshold)
Note: NJ has no standard deduction - personal exemptions only ($1,000/filer, $1,500/dependent)

Self-Employment Tax Checklist

Income Documents

Business Information

Expense Documentation

Vehicle and Mileage

Home Office

Self-Employment Tax and Health Insurance

NJ-Specific Items

Frequently Asked Questions

Related Pages

Have Your Documents Ready?

Self-Employment Tax Checklist

Income Documents

Business Information

Expense Documentation

Vehicle and Mileage

Home Office

Self-Employment Tax and Health Insurance

NJ-Specific Items

Frequently Asked Questions

Related Pages

Have Your Documents Ready?

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