Filing Taxes When You're Self-Employed
Filing taxes when you're self-employed is a different process compared to when you work for someone else's business. It involves separate forms, separate filing schedules, and extra information — such as your business structure and estimated profit.
The upside? You may receive special tax deduction opportunities not available to regular tax filers.
How Self-Employed Tax Filing is Different
Filing taxes while self-employed is a bit of a different process than filing taxes as a person employed by someone else.
When you're self-employed, you'll need to:
- File by Your Business Structure: When you're employed by someone else, your filing status could be single, married filing jointly, married filing separately, head of household, or qualifying widow/er with dependent child. But when self-employed, you'll need to file by how you designate your business structure — sole proprietorship, an LLC, a partnership, an S-corporation, or a C-corporation. The way you're taxed will change depending on which of these you choose.
- File by a Special Number: You'll generally need to apply for and use an Employer Identification Number (EIN) to file your taxes, instead of your social security number.
- File on a Different Schedule: Unlike standard employees, you'll most likely need to file estimated taxes quarterly and send in final tax forms annually by April.
- Fill Out Special Forms: The most common tax form the self-employed need to file is the Schedule C for annual taxes, and form 1040-ES for quarterly taxes. According to your business structure, you may have to fill out Form 1065, Form 1120-S, or Schedule K-1 instead.
Information You'll Need to Keep Track of
Throughout the year, you'll need to keep track of certain information so that tax season goes by smoothly. For starters, you'll want to separate your business finances from your personal finances by opening up a business checking account. You'll also want to track your profit.
And if you want to take the tax deductions discussed below? You'll need to not only track the expenses, but maintain receipts of each in case of an audit.
Remember These Perks
There are certain tax deduction allowances under the law for those who are self-employed that other filers do not get to use. Those include:
- Automobile Tax Deduction: Use your car partly or solely for work? Keep a log of the exact miles used and/or the expenses, and you may be able to deduct them on your taxes.
- Home Office Tax Deduction: If you use part of your home or apartment solely for work, then you may be able to lower your overall tax bill by using the home office tax deduction.
- Cost of Doing Business: Things like office supplies, health insurance premiums, and travel expenses, which are directly related to you earning money, are deductible from your taxes.
As you can see, filing taxes when you're self-employed can get a little complicated. Remember that if you are feeling confused or unsure, the best thing to do is to call the IRS directly and get your specific questions answered from the source.