Whether you own your own business, do freelance work, or drive for Uber, it’s important for you to understand what to do when it comes to filing your taxes. Being your own boss means you also need to have control and knowledge of your finances and be able to stay compliant with the IRS. Being self-employed comes with a good deal of responsibility as well as special tax write-offs. Because there are so many technicalities to being self-employed, it can be challenging to understand if you’re just getting started.
Consider this information to help you handle self-employment and your taxes.
Self-employed people earn money through independent occupations rather than working for a company. To be considered self-employed by the IRS, you must meet certain requirements. These include owning your own business, carrying on a trade or business as a sole proprietor or independent contractor or being a member of a partnership for a trade or business. In other words, you work for yourself or run and own your own business. Being self-employed can be risky, though many people enjoy it because of the freedom associated with doing their own thing.
Self-employed individuals have different tax requirements and obligations than people who work for an employer and receive W-2 forms.
As a self-employed individual, you are required to file an annual tax return and pay quarterly estimated tax payments. When you’re self-employed, you’re responsible for keeping track of when you need to make tax payments, which can be a big adjustment if you previously worked for an employer. Taxes are typically taken out of an employee’s paycheck automatically, so paying the taxes isn’t something employees have to think about.
You are generally required to pay self-employment tax also known as SE Tax and income tax. SE Tax is the Social Security and Medicare tax for individuals that work for themselves. Most taxpayers have these taken out of their paycheck, but since you are self-employed, you must pay it separately. This can feel like a loss of money that others don’t have, so remember that a company’s employees still pay the social security and medicare taxes. They just never see the money going toward it.
As a self-employed individual, you may be required to use your personal resources to help fund or operate your business. For example, someone working as an Uber driver isn’t supplied with a company car — instead, they have to use their own vehicle. While it’s a means of earning a living, it can also result in more miles on the car, more gas money and potential damage to the car. Luckily, another perk of being self-employed is the tax deductions you can file for.
Deductions can lower the amount in taxes that you owe by subtracting incurred expenses from your gross income. There are many ways for taxpayers to claim deductions, though there are some specific deductions that can apply to those who file their taxes as self-employed. These deductions aren’t available to W-2 taxpayers, so if you’re self-employed and these apply to you, be sure to take them to get some money back on your tax return.
Here are some of the most common deductions self-employed individuals claim:
If you’re unsure of which deductions you might qualify for, be sure to consult with a professional tax accountant like the ones at Polston Tax.
Being self-employed can be tricky when it comes to knowing what you’re supposed to pay and what deductions you can take. Hiring a tax professional can be beneficial because they can help you navigate the IRS and all the different taxes and tax deductions out there. Polston Tax helps small business owners and contractors every day. Our team of tax accountants and tax lawyers has studied tax law and knows how to keep you compliant with the IRS while maximizing your tax savings.
For more self-employed tax information, call us at 844-841-9857 or contact us for a free consultation.
