Self-Employment Taxes Q&A
This article answers common questions people have about self-employment taxes. The answers are not legal advice. For advice about your own self-employment taxes, please contact an experienced tax lawyer in your area.
Q: Who Is Considered To Be Self-Employed?
A: Anyone who engages in a business or trade to earn his or her livelihood or a profit, and has not created a corporation to do so, is considered to be self-employed. Examples include independent contractors (including lawyers), farmers, some members of the clergy, and some public officials.
Q: Can I Work Full-Time for Somebody and Still Be Self-Employed?
A: Yes. Self-employment may include paid work outside of your regular job, a second job, or part-time work you do at home.
Q: What Tax Forms Will I Need to Complete?
A: Pick up the following tax forms and instructions, or visit the IRS website:
- Schedule C: Profit or Loss from Business (Sole Proprietorship)
- Schedule C-EZ: Net Profit from Business (Sole Proprietorship)
- Schedule SE: Self-Employment Tax
- Form 8829: Expenses for Business Use of Your Home (if you work at home)
- Form 4562: Depreciation and Amortization
You also may need Schedule F (Profit or Loss From Farming) or Form 4361 (Application for Exemption From Self-Employment Tax for Use By Ministers, Members of Religious Orders, and Christian Science Practitioners). There may be other forms applicable for specific types of businesses. Talk with your tax accountant.
Q: How Do I Pay My Income Taxes When I Don't Have an Employer to Withhold Them?
A: Start by estimating your income for the year, and then put money aside to pay quarterly estimated taxes. If you don't estimate properly, you could face tax penalties. You may want to talk to a tax professional because it will require some planning for the future.
Q: When Do I Pay Estimated Taxes?
A: Estimated taxes are due quarterly on (or the Monday following if that date falls on a weekend) April 15, June 15, September 15, and January 15 of the following year.
Q: I'm Self-Employed and Pay For My Own Health Insurance. Can I Deduct That?
A: Yes. Since 2003, self-employed individuals have been able to deduct the whole amount of health insurance.
Q: Now That I'm Self-Employed and Paying Estimated Income Taxes Quarterly, I Seem to Be Paying a Lot More Money. Why Is That?
A: When you are employed by somebody else, your employer pays half of your employment taxes. You pay the other half. When you are self-employed, you have to pay for both parts.
Q: What Are the Different Schedules For?
A: The tax forms called "schedule" are IRS forms you prepare in addition to your 1040 tax return, to report some kinds of income and deductions for a business.
- Schedule C or Schedule C-EZ is used to report your business expenses, profit or loss. This information then gets reported on the front side of your 1040.
- Schedule SE is where you figure out how much you have to pay in self-employment taxes. If you were accurate in your estimated quarterly self-employment taxes, you may owe nothing further.
Q: My Spouse and I Are Both Self-Employed, but Not in the Same Business. How Do We Report Our Income and Expenses?
A: You both have to file your own Schedule C and Schedule SE. Even if you were employed by the same employer, you'd each be paying self-employment tax on your own earnings.
Q: Is There Any Way That I Can Avoid Self-Employment Tax?
- You can get a job working for somebody else.
- You can earn less than the minimum amount at which you are required to pay taxes. In 2020, for a single person under retirement age, that amount was $12,400.
- If you are a member of a religious order or are paid for performing religious duties, you can apply for an exemption. Speak with a tax attorney knowledgeable about tax laws for religious organizations.
Q: My Small Side Business Doesn't Make Much Money. Do I Have to Go to All This Trouble?
A: It depends. You do not need to file Schedule SE if your net earnings are less than a threshold amount. Your net earnings are the money you collect when you sell your goods or services, minus the cost of the goods sold, general expenses, taxes, and interest.
Q: How Do I Compute My Deduction for the Self-Employment Tax?
A: Use Schedule SE. After you have figured out how much tax you owe, multiply it by 0.50 (50 percent) and that's your deduction. It goes on the front side of your 1040 before you determine your adjusted gross income.
Q: I Operate Two Small Businesses. Do I File Two Schedules for the Self-Employment Tax?
A: No. The information about your earnings may be combined on one Schedule SE. Prepare and file a separate Schedule C for each of your businesses.
Q: What Business Expenses Can I Deduct, and Where Do I Do It?
A: Use Schedule C or Schedule C-EZ. You can use Schedule C-EZ if your business expenses do not exceed $2,500. Keep track of (and retain records for) items such as advertising, legal services, office expenses, repairs and maintenance, rent or lease of business property, insurance, etc. Review the form to see everything you can deduct.
Q: Can I Depreciate the Computer I Bought for My Business?
A: Better yet, why not expense it? Depreciation is a rough measure of how much a piece of equipment loses value over time. In the case of a computer, equipment ages very quickly. When you depreciate, you get to deduct a percentage of the value of the equipment each year. With a computer, you can deduct the entire value the first year.
This one-year deduction of a piece of equipment is permitted under section 179 of the Internal Revenue Code, so it's called a "section 179 deduction." Get Form 4562 to claim the computer as an expense deduction.
Note, however, that you may not be able to take the deduction under some circumstances, so talk to your tax professional first.
Have Specific Self-Employment Tax Questions? Talk to a Lawyer
If you work for yourself, you likely wear many hats, but one of them is probably not as a tax accountant. If you have questions regarding your self-employment taxes, it's a good idea to talk to an experienced tax lawyer in your area.
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