Tax time can be extra taxing for the self-employed. What really do you count as income? What can you deduct as expenses? And why do you have to pay self-employment tax? Here are a few tax tips to help you prepare your self-employed tax return.
1. What is Self-Employment Income?
Self employment income can be any income that you earn as an independent contractor, a freelancer, or even money that comes in from a hobby. You don’t need to make much to be considered self-employed by the IRS.
2. What Business Expenses Can You Deduct?
The good news is that you can deduct any expenses that you incur to create income. Many people have expenses for items that are used for both business and personal, such as computers and internet costs. In those cases the IRS allows you to take a prorated amount as a deduction. Keep a log showing how much is business use, and how much is personal use to come up with your prorated deduction amount.
3. What is Self-Employment Tax?
When you work for someone else as an employee you have social security taxes deducted from your paycheck. Your employer pays an additional amount. When you are self-employed you pay both parts yourself as self-employment tax.
4. How Do You Report Self-Employment Income?
If you are not a corporation or a partnership you will report your self employment income and expenses on Schedule C. It is filed at the end of the year with your Form 1040. However, taxes are due through out the year. Estimated taxes are paid with form 1040-ES.
5. Where Can I Find More Information on Taxes and Self-Employment?
The IRS has many great resources to help self-employed people with their taxes. Start with these links from the IRS.