If you’re self-employed, tax season can feel like a maze of forms and rules. But with a bit of guidance, filing taxes for your self-employment income is totally doable.
Whether you’re freelancing, running a small business, or juggling multiple gigs, here’s how to navigate your taxes and keep more of what you’ve earned.
Confirm If You Actually Need to Pay Self-Employment Taxes
Anyone who considers themselves self-employed generally needs to pay self-employment tax. According to the IRS, you’re considered self-employed if:
- You operate as a sole proprietor or independent contractor. If you’re running your own business, freelancing, or offering services without being hired as an employee, you fall under this category.
- You’re a member of a partnership that’s in business. Partnerships where each partner has an active role in the business also qualify as self-employed entities
- You’re “in business for yourself,” even if it’s part-time. Side gigs count too. If you drive for rideshare services, deliver food, or rent out property on platforms, you’ll need to report and pay taxes on that income.
If your net earnings from self-employment are $400 or more, the IRS requires you to file a tax return. But also be aware - if you make less than $400, you still need to report your income to the IRS if you meet other filing requirements in Form 1040 and 1040-SR.
Figure Out How Much You Earned
Calculating your income is a crucial step, as it forms the basis for what you’ll owe. To do this:
- Review Income Sources: Look at all the income you earned from self-employed work, including freelance projects, side gigs, or business sales.
- Gather Documentation: Income is often reported to you on Form 1099-NEC (for contractors) or Form 1099-K (for credit card and online payments if you meet certain thresholds).
- Include Other Payments: Make sure to account for any direct payments from clients that might not be reported on a 1099.
Keeping an organized record of these earnings can help you avoid underreporting and save time when you’re ready to file.
Understand Your Tax Status and Forms You’ll Need
Being self-employed means you’re both the “employee” and “employer” in the eyes of the IRS. You’re responsible for paying self-employment tax, which covers Social Security and Medicare.
It’s a little more than what employees pay because you’re handling both halves. For 2024, the self-employment tax rate is 15.3% - that’s 12.4% for Social Security and 2.9% for Medicare, based on your net earnings.
Forms You’ll Need:
- Form 1040: This is the standard individual income tax form.
- Schedule C (Profit or Loss from Business): To report income and expenses.
- Schedule SE: To calculate self-employment tax.
Know Your Deductible Expenses
One of the biggest perks of being self-employed is the range of deductible expenses you can claim to potentially lower your taxable income. Here are some common deductions:
- Home Office Deduction: If you use part of your home only for work, you may be able to deduct a portion of your rent, mortgage, utilities, or internet costs.
- Business Supplies and Equipment: Everything from computers to office supplies can be deducted if they’re necessary for running your business.
- Travel Expenses: If you travel for work, keep those receipts for things like lodging, transportation, and meals.
- Health Insurance Premiums: You may be able to deduct health insurance premiums for yourself and your family.
- Retirement Contributions: Contributing to a SEP IRA or solo 401(k) can help reduce your tax bill while you save for retirement.
Tracking these expenses throughout the year will help you avoid scrambling at tax time and ensure you’re maximizing your deductions.
Estimate and Pay Quarterly Taxes
Since taxes aren’t automatically withheld from your earnings like they are for employees, you’ll need to estimate your taxes and pay them in quarterly installments. The IRS expects these payments if you anticipate owing $1,000 or more when you file. Paying quarterly helps you avoid big surprises (and penalties) at the end of the year.
Quarterly Payment Deadlines:
- April 15: For January – March
- June 15: For April – May
- September 15: For June – August
- January 15 of the following year: For September – December
To help calculate these payments, use Form 1040-ES. Missing or underpaying these deadlines may result in penalties, so keeping on top of this schedule can save you money in the long run.
Additional Tax Tips for Small Business Owners
Beyond the basics, self-employed people and small business owners can benefit from these extra tax-saving tips:
Depreciate Large Expenses: If you’ve purchased expensive assets like computers or machinery, you can spread the deductions over a few years to manage your tax burden.
Set Up an Account for Taxes: Setting aside 25-30% of your income in a dedicated account for taxes can make quarterly payments and year-end filing much easier.
Plan Ahead for Retirement: Making contributions to retirement accounts can reduce taxable income and grow your future savings.
Separate Personal and Business Expenses: Maintaining separate bank accounts for business and personal finances simplifies tracking and keeps you audit-ready.
Consider Hiring a Tax Professional
Filing self-employment taxes can get complicated - especially as your business grows or if you work multiple side-gigs.
If you’re uncertain about deductions, quarterly payments, or any other tax requirement, it’s probably worth hiring a tax professional to make sure you’re getting all your deductions and filing everything correctly. Plus, they can give you insights into how to save more next year.
Want Help With Independent Contractor Taxes?
Taxes don’t have to be overwhelming. Whether it’s understanding self-employment tax, tracking deductible expenses, or paying quarterly estimates, you’ve got tools and support available to make filing easier.
If you need tax prep help or have financial concerns around filing, AMG Finance is here with both professional tax preparation and loan options to make tax season stress-free.
With a little planning and the right resources, tax time can be manageable. You’ve got this.
