Self-Employment Q&As
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If you work as a sole proprietor of your own business, it's important to plan ahead to make sure your taxes are paid and your business income and expenses are reported correctly. These Q&As may help answer questions you have about tax treatment of your business.
Am I self-employed?
If you operate a business and you are not an employee, you are generally self-employed. You can be self-employed in addition to your regular job as an employee.
Am I still self-employed if I own a business?
Probably. If you own a small business, you are generally self-employed unless you have formed a corporation. You may be called a sole proprietor, a partner in a partnership, an independent contractor, or a consultant.
If you form a corporation, and the corporation pays you as an employee, you are not self-employed for tax purposes.
What is self-employment tax?
When you are self-employed, you pay Social Security and Medicare tax as self-employment tax. Unlike wage earners who pay half of Social Security and Medicare tax themselves and their employers pay the other half, self-employed persons pay the entire tax themselves.
What do I include as self-employment income?
You should report all earnings generated from your business as self-employment income, including revenue from customers, clients, and organizations. To calculate your net self-employment income, TaxAct reduces these earnings by your allowable expenses.
What expenses can I deduct?
You can deduct ordinary and necessary expenses for your business. This includes but is not limited to:
- Advertising and marketing expenses
- Computer and Internet fees, computer maintenance
- Contract labor; for example, if you pay an independent contractor
- Dues and subscriptions related to your business
- Rent on business property, such as your office or storefront
- Interest on money you borrowed for business purposes
- Taxes related to your business
- Licenses and fees
- Insurance, including liability insurance for your business
- Payroll expenses
- Expenses for business use of your car
- Expenses for business use of your home
- Depreciation on assets used in the business
What are estimated tax payments and who has to pay them?
If you have any income that is not subject to withholding, including self-employment income, you may need to send tax payments to the IRS four times a year to avoid owing interest and penalties when you file your return. These payments are called quarterly estimated tax payments.
You generally must make estimated tax payments if you expect your tax liability to exceed you're the tax withheld from your pay by $1,000 or more.
Do I have to make estimated tax payments if I also have income tax withheld from my job?
You may not have to make estimated tax payments if you have enough tax withheld from your job to cover taxes on all your income, including your self-employment income. You can even increase the amount you have withheld from your paycheck so it covers income from both sources.
Make sure you have enough total tax withheld and paid in estimated taxes to avoid a large tax bill when you file.
Do I have to make estimated tax payments only on income tax?
Estimated tax payments should cover both self-employment tax and income tax. Otherwise, you may owe a large tax bill, and potentially interest and penalties, at the end of the year.
Where is self-employment income and expenses on my tax return?
If you are a sole proprietor, TaxAct reports your business income and expenses on Schedule C, Profit or Loss From Business.
TaxAct then reports all self-employment income on Schedule SE, Self-Employment Tax. If you file a joint return and you and your spouse both have self-employment income, TaxAct reports each spouse's self-employment income on his or her own Schedule SE.
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Upcoming Tax Dates
January 1 — Everyone
Federal Holiday (New Year's Day)
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January 10 — Employees who work for tips
If you received $20 or more in tips during December, report them to your employer
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January 15 — Individuals
Make a payment of your estimated tax for 2018 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES
Details
January 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in December 2018
January 15 — Farmers & fishermen
Pay your estimated tax for 2018 using Form 1040-ES
Details
January 21 — Everyone
Federal Holiday (Martin Luther King, Jr. Day)
Details
January 31 — All Employers
Give your employees their copies of Form W2 for 2018. If an employee agreed to receive Form W2 electronically, have it posted on a website and notify the employee of the posting.
January 31 — Individuals who must make estimated tax payments
If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2017 by January 31. Filing your return and paying any tax due by January 31 prevents any penalty for late payment of the last installment. If you cannot file and pay your tax by January 31, file and pay your tax by April 15.
January 31 — Payers of gambling winnings
If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of Form W2G.
January 31 — Social Security, Medicare, and withheld income tax
File Form 941 for the fourth quarter of 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter timely, properly, and in full, you have until 02-10 to file the return.
January 31 — Certain small employers
File Form 944 to report social security and Medicare taxes and withheld income tax for 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more for 2018 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.
January 31 — Farm employers
File Form 943 to report social security and Medicare taxes and withheld income tax for 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.
January 31 — Federal unemployment tax
File Form 940 for 2018. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.
January 31 — All businesses
Give annual information statements to recipients of certain payments you made during 2018
Details