Taxes are tough for everyone, but they can become downright complicated when you are self-employed. So if you’re an independent contractor, here’s what you need to know to file your taxes properly.
Before we dive too deep, self-employed individuals typically have to file both self-employment tax and income tax. Income tax is self-explanatory; however, self-employed tax covers Social Security and Medicare which are typically taken out of a paycheck by one’s employer.
1. Earning Statements
As an independent contractor, you must gather your 1099s before you can file taxes. Anyone who has contracted you must send out your 1099s to you before the end of January. Then, add up the total income you made for the year. If it is less than $400, you do not have to file an income tax return at all, so it can pay to be precise.
2. Think About Deductions
Self-employed workers have the option to claim exemptions on their tax return, so make sure to keep all of your receipts handy when it comes to:
- Business supplies like a computer, printer, paper, pens, etc.
- Travel expenses that are directly related to work
- Home office maintenance
3. Fill Out Your Forms
Unfortunately, the dreaded tax forms are a required part of the process. Self-employed individuals will need to fill out specific forms for both the income tax return and the self-employed tax.
For the self-employed tax, you will need to fill out either a Schedule C or a Schedule C-EZ first. If you had expenses more than $5,000 over the year, you will need to fill out the Schedule C. Expenses totally less than $5,000 require a Schedule C-EZ. These forms can be found on the IRS website, and they will help you calculate the amount of Social Security and Medicare taxes you should have paid. Next, you must use this amount to fill out a Schedule SE (Form 1040), Self Employment Tax form in order to report.
Once you’ve completed the Schedule SE, attach it to a completed 1040 form. This covers both your income tax and Self-Employment tax.
4. Schedule Payments
When it comes to paying your taxes, you can either pay at the end of the year or choose to pay quarterly. You may use a 1040-ES form using last year’s return to estimate quarterly payments. Payments are taken through the IRS’s Electronic Federal Tax Payment System.
Confused? No worries. The IRS Self-Employed Tax Center can help answer some FAQs you may have as well as offer forms and extra support.