If you are self-employed, there are several basic things you should know regarding how your income affects your federal tax return. Here are six tips to remember:
- Self-employment can include income you received from part-time work. This is in addition to your main job.
- Two forms can be used to report self-employment income. Along with your 1040, you must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business. Schedule C-EZ can be used if expenses total less than $5,000 and other conditions are met. See form instructions for these additional conditions.
- If you made a profit, you may have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to calculate the tax. Make sure to file the schedule with your federal tax return if this tax is owed.
- Estimated tax payments on income that is not subject to withholding may need to be made. This tax is normally paid in four installments each year. A penalty could potentially be owed if enough taxes are not paid throughout the year.
- Expenses you paid to run your business can be deducted if they are both ordinary and necessary. Ordinary expenses include those that are common and accepted in your industry. A helpful and proper expense for your trade or business is a necessary expense.
- Expenses can be deducted in the same year you paid for them in most cases. You must capitalize some costs, however. This means you can deduct part of the cost over a number of years.
If you would like more information, please contact our office at (239) 433-5554. We would be happy to assist you with any questions you may have.