Have you been thinking about making the move to self-employment? Or, perhaps you’re already employed by a company, but do some freelancing as an independent contractor on the side.
What should you know about self-employment when it comes to filing your taxes in Jamestown, ND? The tax service professionals at Craig S. Hanson, CPA have some advice and guidance to make your filing experience a smoother one.
How do I know if I have to pay self-employment taxes?
You’ll need to file self-employment taxes if you earned more than $400 in self-employment income. Self-employment income is defined as income that has not yet had payroll taxes withheld.
Any work for which you receive a Form 1099 (though it’s important to note that you may not necessarily receive a tax form in all cases) falls under self-employment income. If you run a business from home, have completed freelance work, receive payment for your services as an independent contractor or have any other earned income that has not been taxed, you have earned self-employment income.
Are there specific forms I need to complete when filing my taxes?
When filing your federal taxes with the IRS, you will need to file a Schedule C, Profit or Loss from Business, or a Schedule C-EZ, Net Profit from Business, as an accompaniment to your Form 1040.
What kinds of taxes will I owe?
You will be responsible for income tax and self-employment tax, which incorporates Medicare and Social Security taxes (because the income you earned does not have these taxes already taken out of your total check). You’ll complete a Schedule SE, Self-Employment Tax, to calculate the amount you will owe.
Do I have to pay taxes on my self-employment income all at once?
It is a good idea to speak to your accountant to learn more about the specifics of your situation, but in general, if you consistently earn self-employment income over the course of a year, you should look into making estimated tax payments.
Your tax service professional can walk you through how to determine your payments and how to ensure that the IRS receives them by the specific deadline set for each quarter.
Not making estimated tax payments throughout the year may mean that you will owe an underpayment penalty when you file your taxes for the April deadline.
Can I deduct any business expenses as a self-employed individual?
The IRS dictates that you can only deduct costs considered both ordinary and necessary. An ordinary expense is one that is frequent and a typical part of doing business in your field, and a necessary expense is one that is relevant and useful in your line of work.
Again, speak to your tax service professional for guidance regarding your particular expenses. In addition, for any business expenses you plan to deduct, you’ll need to keep detailed records and receipts.
Now that you’re up to speed on tips for filing your self-employment taxes, consider working with a tax service in Jamestown, ND to make your filing process as stress-free as possible. Craig S. Hanson, CPA offers a wide variety of accounting services, including tax preparation for individuals, businesses, partnerships, corporations and farms, in addition to payroll services. Contact us today to learn more!