Form 1040 (Schedule C). Profit Or Loss From Business: Fill & Download for Free

First of all, when you work "off the books", so to speak, what you are actually doing is running your own business, with your skills as the primary product that you are selling. What you should do, under these circumstances, is manage your work as though you were managing a business - which means keeping your own set of books, recording income and expenses related to that income. If you haven't been doing that, I suggest that you start now. This doesn't need to be complicated - a simple spreadsheet will do - but come tax time you'll be glad you have that record.When it comes time to file your tax return, and assuming that you are a US citizen or resident alien, you will report your income and expenses from this work on Schedule C (Form 1040), Profit or Loss From Business. The net income from this work will carry to your federal Form 1040, and you will follow the instructions to compute and pay the appropriate taxes (both income and self-employment).Assuming that you just started doing this work in 2013 and didn't have any requirement to file a return in 2012, I don't see any reason for you to take any other action at this stage. If you find that your net profit is large, then you should definitely start paying quarterly estimated taxes in 2014 (see Estimated Taxes).I'd suggest that you see a local tax professional, preferably one who has experience in preparing returns for small businesses, to help give you detailed guidance on your specific situation.

IRS Publication 17, http://www.irs.gov/pub/irs-pdf/p17.pdf, tells you everything that you'd ever want to know about the deductions and credits that are available to the US taxpayer.Writeoffs fall into several different categories:1. so-called "above the line" deductions, available to everybody regardless of whether or not they itemize. These appear on lines 23-36 of Form 1040 (see http://www.irs.gov/pub/irs-pdf/f1040.pdf), and include such things as qualifying educator expenses, contributions to an IRA, moving expenses, and student loan interest.2. itemized deductions, which are taken on Schedule A (see http://www.irs.gov/pub/irs-pdf/f1040sa.pdf) when they exceed the standard deduction, or when married filing separately and the spouse also itemizes. These include medical expenses exceeding 7.5% of adjusted gross income, state and local taxes paid, qualifying mortgage interest, investment interest, charitable contributions, casualty and theft losses, job hunting expenses and other miscellaneous deductions (including tax prep fees!) in excess of 2% of adjusted gross income, and other miscellaneous deductions that you can take regardless of income.3. tax credits. These reduce your tax directly, rather than being written off against your income. Some of these are nonrefundable (which means you don't get them if you have no tax liability), including credit for child and dependent care expenses, the Lifetime Learning credit, credit for retirement savings (the so-called "saver's credit" available to low-income earners with contributions to an IRS or 401k), and credit for energy-efficient improvements to your primary residence. Others are refundable, such as the Earned Income Tax Credit and the Making Work Pay credit, which means you get it whether you have any tax liability or not. Some are both - the American Opportunity Credit, which is an education credit available to certain college students, has a nonrefundable and a refundable component, as does the child tax credit.There may also be additional writeoffs available on your state taxes; for example, in North Carolina unpaid volunteer firefighters and rescue squad workers are entitled to a deduction of $250 if they spent a minimum amount of time in training during the year, and you are also allowed a deduction for contributions to a North Carolina 529 plan. Check with a tax professional in your local area or visit your state's Web site; most if not all have state tax information online.EDIT: The title of the question was changed since I wrote the answer three years ago, so I am editing my answer to extend it to the title change.There is no such thing as a "1099 tax" - just as there is no such thing as "being paid on a 1099" or "being paid on a W-2" for that matter. There are a variety of Forms 1099, and they are information returns that a payor submits to the IRS to report certain types of payments, with a copy provided to the payee. For example, interest paid on a financial account is reported by the financial institution to the account owner on Form 1099-INT - but whether and to what extent that interest is taxable depends on the type of interest income that is being reported. Similar, dividend payments are reported on Form 1099-DIV - but the tax treatment of that income depends on the type of dividend income that is reported.And certain types of miscellaneous payments - including payments to nonemployees for services rendered to a business - are reported by the business on Form 1099-MISC. The tax treatment of income reported on Form 1099-MISC depends on the type of income that is being reported on the form (which is used for many other types of payments besides compensation to nonemployees for services rendered).When people talk about "1099 tax" and "being paid on a 1099", they are talking about a very specific type of income - nonemployee compensation that is often (but not always required to be) reported in Box 7 of Form 1099-MISC. My answer here is limited to that specific reporting combination and should not be taken as applicable to any other income reported on Form 1099-MISC, or to any other income reported on any other Form 1099.Nonemployee compensation reported in Box 7 of Form 1099-MISC is treated as self-employment income by the recipient. It should be reported on Schedule C (Form 1040), Profit or Loss From Business, along with all other income from the same trade or business that is not reported on a Form 1099-MISC. Against that income, the recipient can deduct expenses that arise in the course of conducting that trade or business and that directly relate to the generation of that income; see Deducting Business Expenses and IRS Publication 535 (2012), Business Expenses for a fuller discussion.