Paying Taxes When You’re Self-Employed

5856711413_87c9410f46Image Credit: Images of Money

It can definitely be confusing when tax season rolls around if you are currently working as a 1099 contractor, or in other words, if you are self-employed. If you have been working from home – either on your own business or as an independent contractor, you do still have to pay income tax, as long as you’re actually generating an income. The tricky part is, now you are considered to be the employer and the employee.

Most 1099 contractors love the flexible work schedule and increased amount of independence that comes with being self-employed. However, one of the negatives that unfortunately also comes with the package deal, is figuring out and managing to pay your own income taxes properly and on time.

After all, no one wants to get in trouble with the IRS.

Just like a W-2 employee, your income taxes as a 1099 contractor will be determined by how much you earn per year. You can pay your taxes electronically or the good old-fashioned way: by mail.

The first thing you’ll need to do when determining how much of your wages to fork over to the government, is to add up all of your yearly income. Be sure to include all payments you have received from any and all clients throughout the entire preceding calendar year. The nice thing about working independently, is that you can then deduct business expenses and tax credits from your gross earnings. You can deduct virtually anything that you use to help run your business, ranging from the supplies you use on a daily basis and office furniture in your home to any expenses related to traveling for your business. Another nice bonus of working for yourself, is that you can actually deduct part of your mortgage payment if you have a home-based office.

Next, you should also know that as an independent contractor, you will be required to pay something called a Self-Employment tax, or SE tax. This is because you no longer have an employer taking money out of your paycheck to go toward Social Security and Medicare.

By using form 1040-ES, you will be able to determine whether or not you are required to pay your SE taxes, as well as your income taxes, quarterly, or if you can simply pay them once per year.

After filling out the worksheet attached to form 1040-ES, you will know your estimated quarterly tax payments. Included with form 1040-ES are blank vouchers that independent contractors can use when sending in quarterly tax payments to the IRS. Remember, you can also pay quarterly using the IRS’s electronic payment system.

Even if you pay your SE and income taxes on a quarterly basis, you will still be required to file an annual return every year. This is because most sole proprietors estimate their quarterly income. Your annual report will show the IRS your actual earnings for the entire year so that any corrections may be made to the quarterly payments that you have submitted.. To file your annual return, you can use the Schedule C form, found on the IRS website.

Filing your taxes as a sole proprietor or 1099 contractor can be confusing, especially if this is your first year in business for yourself. By using the tips in this article, you should be able to successfully handle filing the appropriate forms and making the correct payments.

Should you need further assistance, we can easily direct you to a trusted tax preparer within our vast professional network. It’s as simple as leaving a comment after this post, sending us a quick note using our Contact Us form, or calling/dropping by our office. As always, we’re happy to help!

Advertisements

2 Responses to Paying Taxes When You’re Self-Employed

  1. Pingback: Can I Keep My Tax Refund if I File for Chapter 13 Bankruptcy? | Veitengruber Law

  2. Pingback: Can I File for Bankruptcy if I’m Self-Employed? | Veitengruber Law

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: