Q. What tax schedule must I fill out if I am self-employed?
- For nearly all self-employed persons, a Schedule SE, Self Employment Tax, must be filled out and attached to their federal income tax return. There are two types of Schedule SEs, the Short SE and the Long SE. You are usually better off with the latter, even if it is longer. The Schedule SE will help you calculate how much you owe in self-employment tax.
Q. Regarding taxes, what is the downside to being self-employed?
- The downside would be that you are responsible for paying all of your own Social Security and Medicare taxes. Normally split 50-50 between employees and employers, if you are self-employed, you have to pay the full amount yourself, which is an extra 7.65%. If you have employees, you are also required to pay half of theirs as well. On the bright side, half of your self-employment tax can be reported as an adjustment on your Form 1040, which reduces your gross income by this amount.
Q. Can I wait until the end of the year to start paying taxes since I just started my own business?
- Self-employed people are required to pay the IRS taxes on a quarterly, not annual, basis. To assist you in paying self-employment tax, consult IRS Publication 505, Tax Withholding and Estimated Taxes, and Publication 533, Self-Employment Tax.
Q. What form do I use to pay estimated tax?
- To pay your estimated tax, you use IRS Form 1040-ES, Estimated Tax for Individuals. Estimated taxes are paid when no or not enough money is not withheld from income. This includes income from self-employment, unemployment compensation, alimony, interest and prizes.
Q. What special deductions am I entitled to as a self-employed person?
- You are eligible to deduct a variety of business expenses, such as the cost of furniture, office supplies and telephone bills. If you have a home office, you may be qualified to take a home office deduction. Renters of offices may deduct rental payments.