Phoenix Tax Prep | Self Employed
Many individuals who have a trade or business would classify themselves as self-employed. Sole-proprietors and independent contractors are two of the more common examples of self-employment. Being self-employed can have a big impact on your personal tax return. Here are some tips about the income you receive from self-employment.
Self Employed Income – Self-employment income can include income you receive for part time work that is in addition to your regular job.
Schedule C – The form most self-employed individuals will use to report their self-employment income is form Schedule C. You must file a form Schedule C with your form 1040. On this form you will report your income received from self-employment as well as any allowed expenses.
Self Employment Tax – If your self-employed business made a profit for the year, you will have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. You will transfer your profit from form Schedule C to form Schedule SE to figure the amount of self-employment tax you owe.
Estimated Tax Payments – If your business is consistently making a profit, you may be required to make estimated tax payments. Tax payers usually make these payments on income that is not subject to backup withholding. This payment is normally made four times a year. If you don’t make enough estimate payments, you may owe a underpayment penalty on your 1040 tax return.
Allowable Deductions – You can deduct expenses needed to run your business so long as the expenses are ordinary and necessary. An example of an ordinary expense would be one that is common and accepted in your industry. A necessary expense would be one that is helpful or proper for your trade or business. Expenses are deducted in the year you pay for them. Some costs, however, must be capitalized and deducted over a set number of years.
If you have any questions or would like more information, do not hesitate to contact us at Dusseau & Makris, PC, your Phoenix CPA firm.