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

October 10 — Everyone
Federal Holiday (Columbus Day) - Details

October 11 — Employees who work for tips
If you received $20 or more in tips during September, report them to your employer - Details

October 13 — Communications and air transportation taxes under the alternative method (special September deposit rule).
Deposit the tax included in amounts billed or tickets sold during the period beginning September 12 and ending September 15.

October 14 — Regular method taxes (special September deposit rule).
Deposit the tax for the last 4 days of September.

October 17 — Individuals
If you have an automatic 6-month extension to file your income tax return for 2015, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due - Details

October 17 — Partnerships
Electing large partnerships: File a 2015 calendar year return (Form 1065-B). This due date applies only if you were given an additional 6-month extension - Details

October 17 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in September.

October 17 — Nonpayroll withholding
If the monthly deposit rule applies, deposit the tax for payments in September.

October 26 — Communications and air transportation taxes under the alternative method.
Deposit the tax included in amounts billed or tickets sold during the last 15 days of September.

October 28 — Regular method taxes
Deposit the tax for the first 15 days in October.

October 31 — Certain small employers
Deposit any undeposited tax if your tax liability is $2,500 or more for 2016 but less than $2,500 for the third quarter.

October 31 — Federal unemployment tax
Deposit the tax owed through September if more than $500.

October 31 — Form 720 taxes.
File Form 720 for the third quarter of 2016.

October 31 — Wagering tax
File Form 730 and pay the tax on wagers accepted during September.

October 31 — Heavy highway vehicle tax
File Form 2290 and pay the tax for vehicles first used in September.

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