5 Tax Tips for The Self-Employed

learn about taxes

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.

What To Do When You Can’t Pay Your Taxes

April 15th has arrived, and you don’t have enough money to pay your taxes.  What are you going to do?

First of all, don’t panic. You are not alone. Every year thousands of people come up short when it comes time to pay the IRS.   Here is what you can do when you can’t pay your taxes.

First of all, file your tax return on time.  Pay whatever you can with your tax return.   This way you won’t be subject to the failure to file penalty, which can be as high as 25% of the tax due.  If you won’t have your tax return completed by Apirl 15th, you can file an extension.  But the extension is just and extension of time to file, not an extension of time to pay.

If you know you will be able to pay your taxes within the next few months, you can file and extension with a payment, and then file your tax return and pay the rest of your tax bill at that time. You will still be subject to interest and penalties, but you may be able to avoid the  convenience fees that come with paying your taxes by credit card, or the set up fee the IRS charges for an installment agreement.

But if you have a  really large tax bill, one that might take years to pay off, you are going to have to accept the fees and either  pay your taxes with your credit card, or you can request a payment plan (also known as an installment agreement) from the IRS.

To pay your taxes by credit card you need to go through an authorized payment company.  They will charge you a convinience fee, which is around 3% of the amount that you are paying.  You can find out more about paying by credit card here.

If you can’t or don’t want to pay your taxes by credit card, you can request a payment plan from the IRS. If you owe less than $25,000 and expect to be able to pay your taxes within 3 years your payment plan will usually be accepted. The IRS will charge you a user fee of $105.  You can get the fee lowered to $52 if you have your payments automatically debited from your bank account.  Low income taxpayers may qualify for an even lower fee. You can apply for an installment agreement online here.

Once you have your current taxes taken care of you need to make sure that you are not in the same boat next April 15.  If you are self-employed you will need to pay more with your quarterly estimated tax payments. If you are an employee, you need to ask your employer to withhold more taxes from your paycheck. I know it hurts, but that is the only way to avoid owing next year.

Free Tax Preparation This Saturday

The IRS is calling this Saturday, March 21, 2009, Super Saturday and is offering free tax preparation for people earning less than $42,000 per year. There are over 250 Taxpayer Assistance sites, and hundreds more community sites where trained volunteers will prepare your Federal income tax returns for free.

You will need to bring all your tax papers with you, including social security cards for everyone on the tax return, a photo ID for the taxpayer (and spouse if married), and all your income and expense paperwork.

This is also a good time to get help from the IRS if you can’t pay your tax bill, or if you have other unresolved issues with the IRS. Whatever your income, on Super Saturday, you can go to any of the IRS sites and set up a payment plan to pay your tax bill, or talk to an IRS representative about your tax problems. The IRS says it is committed in these tough times to make it easier for tax payers to pay their taxes.

To find out where you can have your taxes prepared for free, visit the IRS Website.

Tax Deductions for Your Online Business

Last year I wrote a post called 101 Tax Deductions for Your Online Business.   I was looking it over today, and thought I would point out a few of my favorites.

#10. Business related webinars and seminar fees. This is one of my all time favorite deductions, because I love to travel, and I love to be able to write off my travel. As long as the main purpose of your trip is business, and you spend the majority of your time in business related activities, you can write off all your travel expenses. So for example if your business is web design, and you go to a seminar for web designers where you can meet vendors, potential clients, and learn more about the latest advance in web design, you can write off your airline tickets, hotel fees, and 50% of your meals. Just make sure you have a real business purpose for the trip.


#58 – 66 Start up and organizational costs. Until you actually open your virtual doors and are “in business” you can’t deduct the expenses you incur while getting your business started. However, once the business is started you can take your start up and organization costs, and amortize them over “not less than 60 months”. With amortization, you don’t get to deduct all your expenses at once, but you do get to take a portion each year for 5 years. This can be to your advantage, because you will be deducting expenses in later years, when you will probably be making more money.

#98-101. Qualified Home Office. Sometimes thought of as an audit flag, a qualified home office done right is a great tax deduction. If you have a place in your home that is used regularly and exclusively for business, you can write off a portion of your mortgage, rent, utilities and home improvements. Just make sure you follow all the rules carefully and you will have a great tax deduction that will stand up to an auditor.

What are your favorite tax deductions for online businesses? What are the strangest things you have heard of people deducting for their business?

What To Do If You Have Unpaid Back Taxes?

Tax time is here! It is bad enough just needing to file one tax return, but what if you have unfiled back tax returns and unpaid taxes? Having unfiled tax returns can be very stressful. The IRS can make your life miserable. They can garnish your wages, put a lein on your house, and even lock up your bank account so you can’t get at your money! Also, know that when you have unfiled tax returns, that tax year stays “open” and available for audit for up to 3 years after you do file your tax return. And every year you don’t file and pay your taxes, penalties and interest are adding up.
So what do you do if you have back taxes and unfiled tax returns?

Filing back taxes is not something you want to do on our own. There are ways to reduce your IRS tax debt, but you have to know the best way to approach the IRS. At the very least you should do some research about all the options available to you.

I have just found a site that can be a great resource. Back Tax Help has an extensive amount of content that you can use to research your particular tax problems. What I really like is they have a number of guides that will walk you through filing back tax returns and paying unpaid taxes. If you don’t have time to do the research, or you don’t want to go it alone, they also offer professional services to help you with your tax problems. So don’t wait any longer. Make this the year you file your back tax returns and get rid of that stress forever.

Are You Still Asking- Where is My Stimulus Payment?

Click here to go to the IRS Stimulus Page

Have you filed your 2007 tax return, (even if you don’t normally file),  waited at least 6 weeks, yet you still haven’t received your stimulus payment? It sure could come in handy this time of year!  What should you do?

First, check this Stimulus Payment Calculator to make sure you qualify. Some of the reasons you might not qualify are covered in this post,  Where’s My IRS Stimulus Payment?.  If all these things check out, it could be that you are one of the 279,000 taxpayers who had their stimulus payment check returned by the US Postal Service.  Apparently, IRS stimulus checks worth over $163 million have been returned by the postal service as being undeliverable.  That is in addition to the $103 million in refund checks that were returned.

If you think you might be one of those 279,000 taxpayers who’s check was returned by the postal service you need to update your address right away.  The stimulus checks must be sent before December 31, 2008. The IRS is recommending that you update your address by November 28, 2008 to insure that they receive their stimulus payment.  You can update your address by filing form 8822.  You only need to file the form one time and the IRS will send both your stimulus payment and any tax refunds that you are due.

But what happens if you are too late, and you don’t get your stimulus payment this year, are you out of luck?  The good news is that if you qualify for the IRS economic stimulus payment, and you don’t get it this year, you can take it as a credit on your 2008 income tax return that you will file in early 2009.

IRS Standard Mileage Rate Raised

Recognizing that the sky rocketing gas prices may be making driving more expensive, the IRS has dramatically increased the standard mileage rate for business miles.

When calculating deductions for business auto use, taxpayers can use either actual expenses, or the standard mileage rate. The mileage rate takes into consideration not only fuel prices, but maintenance and depreciation. Many taxpayers prefer using the standard mileage rate because it simplifies record keeping.

The standard mileage rate is usually adjusted for inflation at the beginning of the year. However, because of high gas prices the IRS has done a mid-year adjustment. Beginning July 1, 2008 taxpayers can deduct 58.5 cents per business mile, up from 50.5 cents per mile.

Taxpayers are also allowed to deduct mileage expenses related to moving, medical expenses, and charitable work. Apparently cars cost less to drive if you are driving for charity, medical care or moving. Medical and moving miles can be deducted at 27 cents per mile, charitable miles are only worth a 14 cents per mile deduction.

You can find out more at the IRS Website.