Over 14 million people consider themselves to be self-employed in America. That’s nearly 10% of the workforce!
The rules for self-employed taxpayers can be complicated. But there’s no need to worry as long as you follow some basic rules from the IRS. Here are some tips:
Tips for Self Employed & Independent Contractors:
1. Self-Employed Pay Their Own Income & Social Security Taxes
First, since you are no longer an employee, you’ll need to pay your own income and Social Security taxes. Most taxpayers with self-employment income make quarterly estimated tax payments based on the amount of income the business earns.
2. You’ll Need to File Schedule SE
Self-employed taxpayers also need to pay self-employment Social Security and Medicare taxes by filing Schedule SE with their tax return. The rate is 15.3% of your self-employment earnings. But, you get to deduct half of those taxes on your 1040 as an adjustment to income.
3. File a Schedule C
At tax time, you’ll need to file Schedule C to declare your income from your self-employment wages. The good news is you can also use Schedule C to list your deductible expenses for things such as advertising, insurance, employee wages and equipment you purchased to do your work.
4. Use Tax Software Specifically for Self-Employed
Not paying an accountant to do your self-employment taxes? No problem!
The best names in tax software are on top of everything you need when it comes to filing your taxes as an independent contractor or self-employed taxpayer.
However, you won’t be able to list important deductions in the free version of any tax software, so plan on paying!
5. Expenses Are Deductible In the Year You Pay Them
Most people are cash-basis taxpayers so expenses are deductible in the year you pay them and income counts in the year that you receive it.
6. The Home Office Deduction
If you have a home office that you use exclusively for your business, things like making appointments and billing customers might also be eligible for a home office deduction.
You’ll also be able to deduct a portion of expenses for your home, like utilities and repairs.
7. Transportation Deductions
You can also deduct expenses for cars or trucks you use to transport your equipment and to travel from job to job. Software like TurboTax Self-Employed will help you choose between the standard mileage rate or deducting your actual expenses for things such as gas, oil, insurance and repairs.
TurboTax Self-Employed will help you figure out what you owe, what expenses you can deduct and help you file all the right forms. For more information on the tax rules for being self-employed, check the video below:
10 More Tax Tips for the Self-Employed:
It’s a little outdated, but still relevant!