If you are self-employed, then you are sure to find tax season stressful. This is especially true if this is your first year filing as a self-employed individual. While friends and family may receive a simple W-2 Form they can file painlessly, you might receive several unfamiliar forms. Instead of receiving a refund check, you may have taxes due. Filing taxes is particularly difficult for the self-employed, but some simple guidelines can help you navigate your way through the treacherous waters of tax season.
Your first step is to determine whether or not the IRS considers you an independent contractor. Business owners, freelancers and consultants fall into this category, but so do many others. They may consider you self-employed, even if you are working an ordinary job temporarily. If you are an independent contractor, then the person paying you does not withhold taxes from any payments made to you, nor is he or she going to have you complete a W-4 Form. Refer to IRS guidelines to determine whether or not you are self-employed under their rules.
Your next step is to determine your tax responsibilities. In addition to paying income taxes, self-employed individuals must also pay self-employment tax, which is a Medicare and Social Security tax for individuals who work for themselves. Your taxes are filed using a 1040 Form. Schedule SE is required if your self-employment income is at least $400 after deducting expenses. If your net self-employment income is less than $400, then you may not have to file at all. Refer to Form 1040 to determine if it is necessary for you to file.
The annual process of filing your taxes as a self-employed person is very similar to the filing process of anyone else. You have the option of filing by mail or online and you may use the same tax software as anyone else. However, there is one major difference between the tax responsibility of an independent contractor and that of a standard employee. Since you do not have an employer withholding these taxes for you, as an independent contractor, you are required to pay your estimated tax quarterly for the current year. Use Form 1040-ES to determine your estimated tax for the year. This form also includes vouchers to include in your quarterly tax payments. It is important to calculate your estimated tax and pay quarterly. As a self-employed person, you may end up paying a penalty if you do not do so.
Filing taxes is no one's favorite activity, but there is no reason to dread the process jut because you are self-employed. Although working an independent contractor includes an additional self-employment tax and the necessity of paying taxes quarterly, these responsibilities are not as onerous as they may sound at first. Although you use different forms, the process of filing is no more difficult. With a little research and practice, you can learn to file your taxes with ease.