Tips for Self-Employed Taxpayers

by Contributor | March 17, 2014 2:17 pm

If you are an independent contractor or run your own business, there are a few basic things to know when it comes to your federal tax return. Here are six tips you should know about income from self-employment:

 

• Self-employment income can include income you received for part-time work. This is in addition to income from your regular job.
• You must file a Schedule C[1], Profit or Loss from Business, or Schedule C-EZ[2], Net Profit from Business, with your Form 1040.
• You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE[3], Self-Employment Tax, to figure the tax. Make sure to file the schedule with your tax return.
• You may need to make estimated tax[4] payments. People typically make these payments on income that is not subject to withholding. You may be charged a penalty if you do not pay enough taxes throughout the year.
• You can deduct some expenses[5] you paid to run your trade or business. You can deduct most business expenses in full, but some must be ’capitalized.’ This means you can deduct a portion of the expense each year over a period of years.
• You can deduct business costs only if they are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.

  Visit the Small Business and Self-Employed Tax Center[6] on IRS.gov for all your federal tax needs. You can also get IRS tax forms and publications on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
  
  Additional IRS Resources:

• Form 1040-ES[7], Estimated Tax for Individuals
• Publication 505[8], Tax Withholding and Estimated Tax
• Publication 334[9], Tax Guide for Small Business
• Publication 535[10], Business Expenses

IRS YouTube Videos:

Estimated Tax Payments – English[11] | Spanish[12] | ASL[13]

IRS Podcast:

Estimated Tax Payments – English[14] | Spanish[15]

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