Tax Basics for the Self-Employed
If you are self-employed, you are required, in most cases, to file taxes annually and pay an estimated tax each quarter. As self-employed, you do not have your income withheld by an employer, and therefore, you need to file and pay the self-employment tax (SE tax) along with your income tax. The self-employment tax covers Social Security and Medicare taxes. To calculate these taxes, you may use Schedule SE on Form 1040.
For filing your annual tax return, you can use either Schedule C or Schedule C-EZ. If you have a small business and generally have expenses of $5,000 or less, you can use Schedule C-EZ. On the other hand, if you run a larger business and have more than $5,000 in expenses, you should use Schedule C.
Seeking the assistance of a tax professional is advisable and will provide the correct forms and guidance required when filing your annual tax return. Contact RMS Tax Consulting at (520) 448-3531 and speak with Enrolled Agent Richard Schickel for a free consultation.
The following self-employed deductions can be used to reduce your annual tax bill. These include:
- Premium of Health Insurance: If you pay health insurance premiums for yourself, your spouse or dependent(s), you may deduct the cost of the premiums from your income.
- Home Office Deduction: If you use your home as an office, you are allowed to deduct expenses for the business use of your home. The IRS has relaxed the eligibility criteria and made it possible for more self-employed individuals to use the home office deduction.
If you have no other fixed location of work and use your home for administration and/or management of your business, you can claim the home office deduction.
- Equipment costs: You can deduct the cost for the purchase of office equipment such as computers, office furniture and furnishings, etc. It is best to deduct the cost in the same year in which you make the purchase(s). Expenses made for travel, business parties and lunches are also deductible, but must before business purposes only.
It is important that for any purchase(s) you make for your business, you remember to ask for the bill and keep the receipt in a safe place for your tax returns and records.
Being self-employed can be complicated when filing your annual tax return. Seeking the assistance of a professional tax consultant can eliminate any questions you may have when you file. Contact RMS Tax Consulting at (520) 448-3531 and speak with Enrolled Agent Richard Schickel for a free consultation.