5 key tax questions to ask if you're self-employed

Working for yourself can come with freedom and flexibility, but it may require a little extra planning when it comes to paying taxes. Here are a few questions to ask along the way to keep yourself on track.

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More than 9 million Americans are self-employed.

Source: Bureau of Labor Statistics, numbers reflect unincorporated self-employed

1    Do I qualify as self-employed?

According to the IRS, you’re generally self-employed if you’re an independent contractor, sole proprietor or member of a partnership that carries on a trade or business.

You’re generally considered an independent contractor when your clients control only the result of your work and not how you do it. Many independent contractors work part-time (link: https://bettermoneyhabits.bankofamerica.com/en/taxes-income/tax-planning-when-you-work-part-time.html) for multiple clients.

Sole proprietors are defined by the IRS as those who own unincorporated businesses by themselves. This is the simplest type of business ownership, where there is no distinction between you and the business you run.

2    Okay, I qualify. Do I need to pay quarterly estimated taxes?

If your income isn’t subject to withholding like an employee paycheck is, or you expect to owe $1,000 or more in annual taxes, then you may need to pay estimated taxes each quarter.

3    How do I estimate those taxes?

The IRS Form 1040-ES—“Estimated Tax for Individuals” (link: https://www.irs.gov/pub/irs-pdf/f1040es.pdf)—can help you figure out how much you owe.
 
Filing deadlines are quarterly:

Taxes are due on the 15th of these months, but the date may vary slightly if the 15th falls on a weekend or holiday.

APR
JUN
SEP
JAN

4    What other tax forms do I need to know about?

Schedule C or C-EZ: You will use this form to report income or losses from any contract work or sole proprietorship.

Schedule SE: This form will determine the amount of Social Security and Medicare taxes you owe. Collectively, this is referred to as the self-employment tax.

Form 1099-MISC: If you earned at least $600 from a client, you should receive a Form 1099-MISC that reports the client’s total payments to you. The amount detailed on this form should match the amount you report on your tax return.

5    What deductions can I consider?

Deducting business expenses may reduce taxable income, and thus the amount of taxes owed. Be sure to keep records, though, as you must be able to document these expenses.

You may be able to deduct business-related expenses associated with:

•    A home office used exclusively for your business
•    Marketing or advertising
•    Certain necessary insurance premiums
•    Professional development
•    Tax preparation
•    Office supplies
•    Internet and phone service
•    Certain contributions to retirement plans
•    Business travel

NOTE: This is just a partial list. Keep in mind that deductions generally have rules, limitations and exceptions. Head to the IRS’s Self-Employed Individuals Tax Center (link: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center) for more information.

Keep in mind
Tax preparation software can help you navigate the ins and outs of paying taxes when you’re self-employed, though you may pay a fee. You may also choose to talk to a tax professional. Just make sure any tax help you seek is from a legitimate source. (link: http://irs.treasury.gov/rpo/rpo.jsf)

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