Being self-employed, how it affects your taxes
If you’re one of the many people who work for yourself, either online or offline, you’ll want to read this article on how it affects your taxes. Many people, who work from home, are self-employed. People who work alone in their own business are often called sole proprietors and are considered self-employed.
The term self-employed person is not limited to a person who owns a business. A self-employed person may be an independent contractor, consultant, freelancer, or business owner. You can work online or offline, you can take your business on the road and work from home. Many people who are self-employed are often referred to as independent contractors or freelancers.
Working yourself has its advantages and disadvantages when it comes to taxes. When you work for yourself, you don’t have any tax deducted from your pay compared to a salaried employee. This makes self-employment financially attractive.
As a self-employed person, you are responsible for your own taxes. This means that you are responsible for keeping accurate records of all your income and expenses. You are responsible for reporting all income from your trade or business.
As an independent contractor, you do not receive a W-2 form at the end of the year. Instead, he receives a Form 1099 Misc. This form reflects the amount of money a business paid you during the year. If for any reason you do not receive a Form 1099-Misc, you are still responsible for reporting the income on your tax return, regardless of the amount.
When you are self-employed, you are taxed differently than a salaried employee. As an independent contractor, you file Schedule C, which is a profit and loss statement, with your tax return. You pay taxes on the net income from your trade, business, or profession. Net income is gross income minus all ordinary and necessary expenses. When you are self-employed, you pay both federal income tax and self-employment tax.
One of the great advantages of being self-employed are the many tax deductions (ordinary and necessary expenses) that you may be entitled to on your income statement. Why are tax deductions so important? Tax deductions reduce your net income, which in turn reduces your taxable income. The lower your tax base, the less tax you will have to pay.
Some of the tax deductions you may qualify for as a self-employed person include the following:
• Home Office
• Legal and Professional Fees
• Telephone and Internet
• Customer Meals and Entertainment
• Taxes and Licenses
• Professional publications
• Other Miscellaneous Expenses
These are just some of the tax deductions you can take when you work for yourself. When it comes to doing your taxes, I strongly suggest that you have your tax returns done by a competent tax professional. Having worked in the tax preparation business for over 20 years, I can’t tell you how many times clients fail to account for numerous deductions. This is why you should seek competent tax advice.
One of the disadvantages of being self-employed is the amount of registration required. The IRS requires that you keep and maintain accurate records of your income and expenses. The IRS examines the tax returns of independent contractors and home-based businesses more than those of salaried employees. If the IRS decides to examine your tax return, it is up to you to be able to provide the necessary documentation to verify all the information on your tax return.
As a self-employed person, you must pay your taxes as you go throughout the year. He must make quarterly estimated tax payments throughout the year. When it comes time to prepare and file your tax return, you take credit for those payments on the return. Failure to do so can result in you being penalized when you file your return.
For those of you who would like additional tax information on this matter, the IRS has a publication titled “Small Business Tax Guide”, publication number 334. This publication provides information on self-employment for both individuals and small businesses. Business. business You can download it for free from the IRS website at http://www.irs.gov.
In conclusion, these are the things you should know about taxes if you are going to be self-employed. You should be aware of the importance of reporting all your income and deductions, keeping accurate records, and paying your taxes throughout the year. When it comes time for taxes, you want to be well prepared to pay your fair share of taxes, no more, no less.