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
April 10 — Employees who work for tips
If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.
April 15 — Individuals
File a 2018 income tax return (Form 1040) and pay any tax due. If you want an automatic 6 month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. For more information, see Form 4868. Then, file Form 1040 by October 15.
April 15 — Corporations
File a 2018 calendar year income tax return (Form 1120) and pay any tax due.
Details
April 15 — Individuals
If you are not paying your 2019 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2019 estimated tax. Use Form 1040ES.
April 15 — Household Employers
If you paid cash wages of $2,000 or more in 2018 to a household employee, you must file Schedule H
Details
April 15 — Corporations
Deposit the first installment of estimated income tax for 2018
Details
April 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in March.
April 15 — Household employers
If you paid cash wages of $2,000 or more in 2018 to a household employee, you must file Schedule H (Form 1040). If you are required to file a federal income tax return (Form 1040), file Schedule H (Form 1040) with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H (Form 1040) if you paid total cash wages of $1,000 or more in any calendar quarter of 2017 or 2018 to household employees. Also, report any income tax you withheld for your household employees.
April 30 — Social security, Medicare, and withheld income tax
File Form 941 for the first 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 May 10 to file the return.
April 30 — Federal unemployment tax.
Deposit the tax owed through March if more than $500.