Tax Tips for the Self-Employed and Independent Contractors

Ever heard the saying, “it costs to be the boss”?  Well it does BUT there are also a few perks to being one too.  If you work for yourself as a sole proprietor or as an independent contractor, in general you are considered to self-employed.

Here are a couple of tips you should know about self-employment and the ever important, self-employment taxes:

1. Self-employment can include part-time work you do at home or in addition to your regular job or work in addition to your regular full-time business activities/full-time job – affectionately known as a “side-hustle”.

2. In general, self-employed persons pay both income tax AND self-employment tax.  Simplistically, self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves.  To calculate this amount, you would use a Form 1040 Schedule SE.

3. Now, you’ve gone and done it.  As a self-employed person, you have to file a Schedule C (Profit or Loss from Business) or Schedule C-EZ (Net Profit from Business) with your Form 1040.

4. Sigh.  The dreaded estimated taxes.  Something to keep in mind.  Remember that calculation we talked about from #2 up there^^^… Be advised that you may have to make estimated tax payments. Estimated tax is the method used to pay tax on income that is not subject to withholding.  Cautionary tale:  If you fail to make quarterly estimate tax payments you may be penalized for underpayment at tax time.

5. Keep track of the costs to run your business!  They are deductible** as business expenses.

**NOTE:  To be deductible, a business expense must be BOTH ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business.

For more information, please check out the links below on the IRS website .  Note sure if you can make heads or tails of this?  Shoot us an email, we’d be happy to help.

Links:

• Publication 334, Tax Guide for Small Business
• Publication 535, Business Expenses
• Publication 505, Tax Withholding and Estimated Tax
• Schedule C, Profit or Loss from Business and instructions
• Schedule SE, Self-Employment Tax and instructions
• Form 1040-ES, Estimated Tax for Individuals