Self-employment and Taxes

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As a self-employed person, you have more opportunities for tax deductions than you would as an employee. In addition, the deductions you take related to your business save you not only income tax, but Social Security and Medicare tax, as well. It pays to look for every deduction you are entitled to, and TaxAct can help.

If you buy business assets this year, you generally spread the cost of the assets over their useful lives. For example, if you buy an asset expected to last five years, you deduct part of the cost of the asset each tax year for the next six years (the first and last years are partial years for depreciation).

You can depreciate most assets you acquire except land, which does not wear out or get used up.

Modified Accelerated Cost Recovery System (MACRS)

Most business and investment property is depreciated using the Modified Accelerated Cost Recovery System (MACRS). This method gives you higher "accelerated" deductions in the first years you own the asset, and lower deductions as the asset ages.

You can get an even faster tax benefit from purchasing assets for your business by taking a first-year deduction. You may be able to claim the Section 179 deduction to deduct up to the entire cost of certain depreciable property in the year you place the property in service. You can take this deduction on up to $500,000 in 2016, if you meet the qualifications.

The IRS also allows a special depreciation allowance equal to 50% of your basis in depreciable property that you acquire during the year, reduced by any Section 179 deduction you claim. This special allowance only applies to original-use, or new, assets. However, property you buy for personal use and later convert to business use meets the original-use requirement.

TaxAct helps you determine the best way to take depreciation on business assets and calculates depreciation on Form 4562, Depreciation and Amortization.

Self-Employment Business Expenses and Deductions

You can deduct ordinary and necessary expenses for operating your business as a self-employed person. These expenses may include supplies, utilities, advertising, contract labor, insurance, licenses and fees, subscriptions, dues, and so on.

If you have an expense you could deduct as an itemized deduction or with your business, be sure to allocate the business portion properly. You generally receive more tax benefit by taking a business deduction than an itemized deduction.

A business deduction not only reduces your adjusted gross income, possibly helping you qualify for other tax benefits, but it reduces your income subject to self-employment tax.


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Upcoming Tax Dates

March 1 — Farmers & fishermen
File your 2016 income tax return (Form 1040) and pay any tax due Details

March 10 — Employees who work for tips
If you received $20 or more in tips during February, report them to your employer Details

March 11 — Communications and air transportation taxes under the alternative method.
Deposit the tax included in amounts billed or tickets sold during the first 15 days of February. Details

March 14 — Regular method taxes
Deposit the tax for the last 13 days of February.0

March 15 — S Corporations
File a 2016 calendar year income tax return (Form 1120S) and pay any tax due Details

March 15 — S Corporation election
File Form 2553, Election by a Small Business Corporation, to elect to be treated as an S corporation beginning with calendar year 2017. If Form 2553 is filed late, S corporation treatment will begin with calendar year 2018.

March 15 — Partnerships
File a 2016 calendar year return (Form 1065) Details

March 15 — Electing larger partnerships
Provide each partner with a copy of Schedule K1 (Form 1065B), Partner's Share of Income (Loss) From an Electing Large Partnership, or a substitute Schedule K1. This due date applies even if the partnership requests an extension of time to file the Form 1065B by filing Form 7004

March 15 — Partnerships
Electing large partnerships: File a 2016 calendar year return (Form 1065-B) Details

March 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule Page 6 Publication 509 (2015) applies, deposit the tax for payments in February.

March 15 — Nonpayroll withholding
If the monthly deposit rule applies, deposit the tax for payments in February.

March 25 — Communications and air transportation taxes under the alternative method.
Deposit the tax included in amounts billed or tickets sold during the last 14 days of February.

March 29 — Regular method taxes
Deposit the tax for the first 15 days of March.

March 31 — Electronic filing of Forms W2
File copies of all the Forms W2 you issued for 2016. This due date applies only if you electronically file.

March 31 — Electronic filing of Forms W2G
File copies of all the Forms W2G you issued for 2016. This due date applies only if you electronically file.

March 31 — Electronic filing of Forms 8027
File Forms 8027 for 2016. This due date applies only if you electronically file.

March 31 — Wagering tax
File Form 730 and pay the tax on wagers accepted during February.

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