Self-Employed End-of-Year Taxes
Self-Employed business taxes are filed with personal taxes every April 15th. The commonly confused $400 amount is for self-employment taxes, but all self-employed income is required to be reported (regardless of if you recieve a 1099 or not). You only pay self-employment (SE) tax if your net income is more than $400 and then this amount of SE tax is added to your income taxes.
Self-employment tax comes out to 15.3% but it's actually a bit lower that this because:
- You get deduction for 1/2 of employment taxes for the income tax calculation, AND
- Self-employment taxes are only calculated on 92.35% of the income from your business.
Don't get overwhelmed, DIY tax software or tax preparers take care of all of this for you, automatically.
Self-employed taxes really aren't that complicated and you certainly don't want to be distracted from your business by them or your concern of them. Like all expenses; when you plan your business properly, all expenses can be paid and you can thrive.
In worksheet 3 of the Business Spreadsheet Template, you can categorize all of your business expenses by the IRS categories. The worksheet will total these amounts for you. All of your business expenses, as we covered in worksheet 1 of the spreadsheet, are deductible.
When can I form S Corp? Can it save me taxes? I highly recommend not to form an S Corp until you have plenty of money to a point when you have no problems spending thousands to pay professionals (like $5,000). That's when the investment will be worth the tax savings.
You're considered "self-employed" for taxes, when you work for yourself. When you're self-employed, your business income and expenses are reported with your personal tax form 1040 on a Schedule C; this keeps things cheap and simple. Separate business taxes are far more complicated than being self-employed.
Self-employed means you didn't form a separate business entity with the state, like a corporation, partnership or non-profit. There's one exception to this rule for LLCs. LLCs are the easiest business to be formed and the IRS never made a tax form for this business. When you are the sole owner of a LLC, you're taxed the exact same as a self-employed business.
Adjustments For Part-Personal Write-offs: Home Office, Mileage, Meals, & Travel
Where things get more complicated, is for expenses that are part-personal and part-business. These are things like the home office deduction, driving your personal car for business, meals and entertainment and using your personal phone and laptop for work. Video #3 covers these write-offs.