This is Victoria from TurboTax. The rules for self-employed taxpayers can be complicated.
But there’s no need to worry as long as you follow some basic rules from the IRS.
First, since you are no longer an employee, you’ll need to pay your own income and Social
Security taxes. Most taxpayers with self-employment income make quarterly estimated tax payments
based on the amount of income the business earns.
Self-employed taxpayers also need to pay self-employment Social Security and Medicare taxes by filing
Schedule SE with their tax return. The rate is 15.3% of your self-employment
earnings. But you get to deduct half of those taxes on your 1040 as an adjustment to income.
At tax time, you’ll need to file Schedule C to declare your income from your self-employment
wages. The good news is you can also use Schedule
C to list your deductible expenses for things such as advertising, insurance, employee wages
and equipment you purchased to do your work. Most people are cash-basis taxpayers so expenses
are deductible in the year you pay them and income counts in the year that you receive
it. If you have a home office that you use exclusively
for your business, things like making appointments and billing customers might also be eligible
for a home office deduction. You can also deduct expenses for cars or trucks
you use to transport your equipment and to travel from job to job. TurboTax will help
you choose between the standard mileage rate or deducting your actual expenses for things
such as gas, oil, insurance and repairs. TurboTax will help you figure out what you
owe, what expenses you can deduct and help you file all the right forms.
For more information on the tax rules for being self-employed, visit Turbotax.com.