Being self-employed is grand…Make your own schedule! Be your own boss! Pay all your own taxes! Gulp….well, sometimes there’s some not fun stuff that comes with being self-employed, and for most people, that includes doing their taxes. Here’s what you need to know to stay on the right side of the law.
What Is Self-Employment Tax?
When you drew a regular paycheck, your company would pay part of the taxes that you owe for Social Security and Medicare, but as a self-employed person, these fall squarely on you. According to the IRS, that figure is 12.4% for Social Security and 2.9% for Medicare taxes, with additional Medicare taxes owed above a certain threshold. (Note that is on top of the regular taxes you must pay.)
Self-employed individuals also must make quarterly estimated tax payments (or face a fine) if they expect to owe more than $1,000 in taxes for the calendar year. Payments are due on April 15, 2019; June 17, 2019; Sept. 16, 2019; and Jan. 15, 2020. To help you estimate your quarterly taxes, the IRS offers tools and online tax calculators specifically for self-employed individuals.
For more information on self-employment taxes, review Form 1040.
Small Business Deductions
With the bad news out of the way, let’s focus on what’s great about being a small business—the ability to deduct most ordinary business-related expenses. There have been major changes to the law based on the Tax Cut and Jobs Act, but many of the small business tax deductions still stand. Here are some of the most common ones that self-employed people may be able to deduct:
- Office space: If you rent office space (even using a coworking space!) you can deduct that amount on your taxes. If you work from home, you can also deduct your home office, provided it is used regularly and exclusively for an office. So for example, a bedroom that is only used for your business would count; a kitchen where you set up your laptop would not.
- Transportation: You may deduct tolls and parking fees if they are used during the course of business. You may also deduct mileage, to the tune of .58 per mile when using your car for business purposes. However, note that you cannot claim these deductions for your regular commute. You can claim these taxes only when you are making sales calls or otherwise doing extra travel outside of just driving to your office.
- Supplies: Every paper clip, file folder and desk accessory is deductible, as are bigger-ticket items like furniture and electronics. Make sure to keep all your receipts organized in the event of an audit.
- Entertainment: You may still deduct 50% of business meals, but you may no longer deduct “entertainment,” such as a round of golf or concert tickets.
- Gifts: Go ahead and shower your clients with appreciation, but keep it under $25 (per year, not per occasion) if you want to deduct it.
Filing Your Tax Return
As a self-employed individual, you will receive 1099 forms from companies for whom you have done work, which will be used to assemble your tax return. However, note that some may not send them, which is not a free pass: You must report all your income, whether it appears on a 1099 form or not.
You will then report all of your income and expenses on a Schedule C (1040) IRS form. (For more details, refer to the Tax Guide For Small Business.)
In many cases, you can file your taxes using your Social Security number as your business identification number. If you hire employees, decide to form a limited liability corporation or owe excise taxes, then you need to set up an Employer Identification Number with the IRS.
Seeking Assistance
Not sure if you are qualified to do your self-employment taxes yourself? Hiring a small business accountant can be a smart move, and you also might want to invest in tax software to help make the job a little easier.
While self-employment taxes may sound complicated, there are solutions for making them simple. With a bit of organization and the right tools, remitting your quarterly taxes can feel as natural as paying your cell bill. Try to stay on top of your paperwork and your obligations, and filing in April can be a relatively painless process.
About the Author
Cathie Ericson is a freelance writer who specializes in small business, finance and real estate.
All content provided herein is for educational purposes only. It is provided “as is” and neither the author nor Office Depot, Inc. warrant the accuracy of the information provided, nor do they assume any responsibility for errors, omissions or contrary interpretation of the subject matter herein. The information should not be relied upon as replacement for professional tax advice.
NOTE: The contents of this article are for informational purposes only. The information should not be relied upon as replacement for professional tax advice.
Sources:
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Simplified-Option-for-Home-Office-Deduction
https://turbotax.intuit.com/tax-tools/tax-tips/Self-Employment-Taxes/What-is-an-IRS-1099-Form-/INF14810.html
https://www.irs.gov/uac/Schedule-C-(Form-1040),-Profit-or-Loss-From-Business
https://www.irs.gov/uac/Schedule-C-EZ-(Form-1040),-Net-Profit-From-Business
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employment-Tax-Social-Security-and-Medicare-Taxes
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center
https://turbotax.intuit.com/tax-tools/tax-tips/Self-Employment-Taxes/Beginner-s-Tax-Guide-for-the-Self-Employed/INF19118.html
http://www.investopedia.com/articles/tax/09/self-employed-tax-deductions.asp
All content provided herein is for educational purposes only. It is provided “as is,” and neither the author nor Office Depot warrants the accuracy of the information provided, nor do they assume any responsibility for errors, omissions, or contrary interpretation of the subject matter herein.
) "Office Depott & OfficeMax"){kind=logo}
) "Office Depott & OfficeMax"){kind=logo}
