There are only two certainties in the world: death and taxes. And yes, even self-employed workers have to send money to Uncle Sam.
Nearly 10 million Americans were self-employed in 2016. Self-employment lets you make your own hours and practice your own responsibilities. It’s perfect for people of all skillsets and in all stages of their careers.
Many people don’t know how to file taxes. Even fewer self-employed workers know how to do it. Thankfully, it’s not hard. You just need to know some self-employment tax tips. You can learn a few with this quick guide.
How to File Taxes when Self-Employed
Many self-employed workers ask, “Do self-employed people file taxes?” The answer is a resounding yes.
You must pay the self-employment tax if your net earnings were above 400 dollars. The self-employment tax rate is 15.3%. 12.4% goes toward Social Security, while 2.9% goes toward Medicare. Keep your pay stubs and bank account balances so you can fill these forms out. If you want an easier way to organize information.
Submit your annual return, then pay taxes quarterly. You will need a Schedule C form for your annual information. For Social Security and Medicare, you must file a Schedule SE form. You can submit these forms through the mail, but electronic submissions will allow for faster refunds. Talk to an accountant or your bank if you need help. Do not fill in claims when you are not sure about your information.
Deductions for Self-Employed Taxes
You have a number of deductions that you can use. Keep all receipts and expense sheets to back your claims.
If you work at home, you can use the home office deduction. You can deduct a portion of your rent, property taxes, and utilities. Your home office space must be an area you use exclusively for work. You cannot deduct kitchen renovations or home expansions.
There is a separate deduction for office supplies. Pens and paper are common, but you can get a deduction for equipment like computers. Continuing education is also deductible. You can cover the costs of tuition, books, and supplies.
The education must improve the skills you need in your present work. The deduction does not cover classes you are taking so you can change careers. You can also get deductions for retirement. You can contribute up to $57,000 into your individual 401k. If you make less than that, you can place up to 100% of your earned income into it.
More Essential Self-Employment Tax Tips
More and more workers are turning to self-employment to develop their skills, yet many of them don’t know how to file their taxes. Follow some basic self-employment tax tips, and you can have a smooth tax season.
The self-employment tax rate is over 15 percent. You can use stub templates to keep track of your information. File a Schedule C form for your annual tax return, then file a Schedule SE form for Social Security and Medicare.
You can make home office and office supplies deductions. If you are taking continuing education, you can receive a deduction for that as well. You can pay toward your 401k, but your contributions are capped. You mean business, so get the facts on business.