Tax Tips for the Self-Employed
February 7, 2012
IRS.gov is a great resource for tax tips. And what better time of year to get a few helpful tips than now? The following are six key tips offered by the IRS for the self-employed business owner.
There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed. Here are a few tips that you should know about self-employment and self-employment taxes:
- Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
- If you are self-employed, you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.
- You will file an IRS Schedule C, Profit or Loss from Business, or C-EZ- Net Profit from Business with your Form 1040.
- If you are self-employed, you may have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments, you may be penalized for underpayment at the end of the tax year.
- You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
- 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 tips, visit irs.gov (IRS TAX TIP 2012-16).