Whether you freelance, own your own business as a sole proprietor, or are an independent contractor, you are likely considered self-employed. Self-employment income has certain tax requirements that you need to be aware of when it’s time to file your federal income tax return. Be aware of the following six pieces of advice from the IRS regarding self-employment income:
- Be aware of what qualifies as self-employment income. This can include part-time income as well as payments received for side jobs. Self-employment income can be in addition to your regular income from your job.
- You need to file a Schedule C or C-EZ if you are self-employed, in addition to your Form 1040. You are able to use a Schedule C-EZ if you had expenses less than $5,000 and you meet certain other restrictions.
- You are required to pay self-employment tax in addition to income tax. Self-employment tax covers Social Security and Medicare taxes. You can use Schedule SE, Self-Employment Tax to calculate the amount you owe, then file it along with your regular return.
- You may be responsible for paying estimated taxes throughout the year in four separate installments. If you do not pay enough tax, you may owe a penalty.
- You are able to deduct business expenses that are ordinary and necessary, meaning it’s common and accepted in your industry. Expenses that are helpful to your trade can be deducted.
- Typically, expense deductions are taken in the same year in which they were paid. There are some expenses in which you can capitalize on, deducting a part of the expense of a number of tax years.