How Do I Get A Tax Code After Being Self-Employed How To Report Self-Employment Income At Tax Time

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How To Report Self-Employment Income At Tax Time

It doesn’t matter if you do odd jobs or work full-time as an independent contractor; Current tax laws require that you report this income at tax time. Paying money does not make you exempt from the law, nor does the fact that you are not “operating” a business.

People who do not operate a business simply report the total of all cash and checks as miscellaneous income on their personal tax return. Expenses are also deducted there; however those expenses do not exceed the income. Someone who has occasional income from a hobby activity would fall into this category.

Self-employed businessmen and women report all income and expenses on Schedule C, the small business tax form. The profit or loss calculated there will be transferred to their personal tax return. A self-employed individual can use any business loss to offset a personal income tax liability. For many, especially in the early years, this often lowers the overall tax burden.

People become self-employed for many reasons, but the driving force for most is the desire to make money. If you are in business for yourself, how much you keep in your own pocket depends on how you understand the costs involved in making that income. And for many, one of the biggest costs is taxes.

Self-employed people are allowed to deduct all legitimate business expenses, depreciate large purchases, take advantage of business tax credits, research and development expenses, deduct a portion of their income -that is if they have a home office, and more. And, after deducting expenses, any remaining profit can be further reduced by pre-tax benefits, business retirement account deposits, education, and many other designed-in items. to keep more money in the business owner’s pocket.

There are many ways to avoid paying taxes; if you do it legally it is called smart tax planning. The IRS code includes a long list of tax-free expenses available to individuals and business owners; you just need to know what it is and how to use it to your advantage.

It is important for self-employed people to realize that income tax is not the only charge levied at tax time if you are self-employed. This is also when you find out what you need to deposit into your personal Social Security and Medicare accounts.

If you are self-employed these two taxes are collectively called Self-Employment Tax. As an employee, your employer must pay half of your FICA (Social Security) and Medicare taxes. If you’re self-employed, you’ll pay both sides because you’re now the employer and employee, and that amount can be overwhelming if you’re not prepared. And that’s where tax planning can help.

Tax planning is the combination of projecting income and expenses for the next year, using current tax laws to optimize retirement and insurance benefits, scheduling tax events for your business and personal future, finding tax law changes that affect your bottom line, and calculating any quarterly tax deposits. A good tax professional not only prepares your tax return, he also helps you with tax planning as part of your annual visit.

If your tax preparer doesn’t offer tax planning you’re not getting the full value for your money, and you’re likely paying too much in taxes. Once tax planning is done there will be few surprises at tax time, your return will be audit proof, and you will have a clear picture of your financial future. And that just makes good business sense.

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