If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself self-employed and you would file IRS Schedule C, Profit or Loss From Business or Schedule C-EZ, Net Profit From Business with your Form 1040.
Here are six things the IRS wants you to know about self-employment:
- Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
- If you are self-employed you generally have to pay Self-employment Tax. Self-employment tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. You figure SE tax yourself using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.
- If you are self-employed you generally have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you don’t make quarterly payments you may be penalized for underpayment at the end of the tax year.
- You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
- To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.
- For more information see IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at http://www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
Tax Help for Small Businesses and Self-Employed
IRS TAX TIP 2011-17
The IRS Small Business and Self-Employed Tax Center at http://www.irs.gov/smallbiz offers extensive resources and online tools designed to help small businesses and self-employed persons.
The IRS Small Business and Self-Employed Tax Center on the IRS website offers the following resources:
- Small business forms and publications
- Employer Identification Number online application
- Employment tax information – federal income tax, Social Security and Medicare taxes, FUTA and self-employment tax
- Tax-related news that could affect your business
- Small business educational events
- IRS videos for small businesses
- A-Z Index for Business – find information fast using the A-Z listing
The site provides important tax information available for all stages of owning a business. Whether you’re starting, operating or closing a business, visit http://irs.gov/smallbiz for all your federal income tax information.
Other resources available on the IRS website include a virtual small business tax workshop, video and audio presentations, a guide to IRS audits, and a tax calendar designed for small business taxpayers.
The IRS Video Portal:
Tax Questions? Learn about tax topics through video and audio presentations on the IRS Video Portal. The video portal contains archived versions of live panel discussions, archived webinars, video clips, and audio archives of national phone forums.
IRS Audits Video Series:
“Your Guide to an IRS Audit” takes the viewer through the steps of an audit from notification to closing. The video series is composed of scenarios that demonstrate the stages of each type of audit: correspondence, office and field. The scenarios address issues that are common to audits of small businesses.
Virtual Small Business Tax Workshop:
The IRS Virtual Small Business Tax Workshop is an interactive resource to help small business owners learn about their federal tax rights and responsibilities. The workshop contains nine stand-alone lessons that can be selected and viewed in any sequence. The workshop is available online 24 hours a day, seven days a week from any computer. It can also be ordered on CD.
Tax Calendar for Small Business Taxpayers:
The Tax Calendar for Small Businesses and Self-Employed – Publication 1518 – is available online or as a printable PDF file. This 12-month calendar is filled with information on general business taxes, IRS and Social Security Administration customer assistance, electronic filing and paying options, retirement plans, business publications and forms, and common tax filing dates. Each page highlights different tax issues and tips that may be relevant to small-business owners, with room on each month to add notes, state tax dates or business appointments. You can also download the tax events into your calendar or subscribe to the tax calendar events. The calendar provides the small business owner with a ready resource for meeting their tax obligations.