Self-employment is great because you get to be your own boss, but it can get tricky when filing your taxes. Here is everything you need to know to file your taxes when you're self-employed.
Whether you're a full-time freelancer or do some projects on the side for extra cash, you need to file IRS Form 1040 if you made over $400 in a single calendar year. Since this threshold is so low, it is important that anyone working outside of a W-2 employer understands that IRS Form 1040 is a requirement.
The self-employment tax is like FICA (Federal Insurance Contributions Act) in which all W-2 employees who make less than $128,400 are taxed 7.65% for social security and Medicare, and their employer also pays 7.65%. The FICA tax is 15.3% and the employee and employer split it. Because a self-employed worker does not have an employer, they must pay the full 15.3% themselves. For more information on the self-employment tax, visit the IRS website.
If you have business income, that will be reported on either Schedule C or Schedule C-EZ. Your self-employment income and taxes will be reported on Schedule SE. Just as it sounds, self-employment taxes can get very complicated. Don't hesitate to contact a tax professional like Denver Pro Tax to help you and ensure you do everything correctly.
Self-Employment Federal Taxes
Self-employed workers must pay the self-employment tax and federal taxes, but the thresholds for federal taxes are different. All employees with an annual income over $11,400 must pay federal taxes, while workers making less than $11,400 are exempt. Since that amount is above the $400 benchmark for the self-employment tax, you would still be required to file.
Some business expenses can reduce your net income if you deduct them on your return. For example, if your job requires traveling, you may be able to deduct the associated expenses. Other expenses like website, advertising costs, business insurance, and rent can be deducted as well. It is important to research the necessary guidelines to see which expenses you should be deducting.
Hire a Professional
Being self-employed is enough work as is; filing taxes correctly is a whole other responsibility. It is highly recommended to work with a professional, especially after the first year of being self-employed. If you are in the Denver Metro Area and need some help filing your taxes or you would like some more information, please contact us today.