How to File Your Self-Employment Taxes in 7 Easy Steps

For those wondering “how to file taxes as self employed”, you’ve arrived at the right place. Navigating through the maze of self-employment tax filing can be a complex task. But worry not, because here at PrepTaxSmart, we’ve got you covered.

Step #1: Make sure you actually have to pay

The threshold of self-employment income that triggers the need to file taxes is $400. If you made more than this during the tax year, you will need to file self employment taxes.

How much is self-employment tax?

The self-employment tax rate is 15.3%, consisting of two parts: 12.4% for Social Security and 2.9% for Medicare. If your net earnings exceed $137,700 (as of 2020), you’ll continue to pay only the Medicare tax.

Step #2: Figure out how much you earned

Calculate your gross income. This includes all money, goods, property, and services that aren’t exempt from tax. You need to report all income, not just what exceeds the $400 limit.

Step #3: Add up your business expenses

Subtracting your business expenses from your gross income results in your net profit or loss.

Common business expenses for self-employed workers

Common deductions include office expenses, vehicle and transportation costs, advertising, insurance premiums, and professional service fees. A self-employed tax return example would be to deduct the cost of home office space if you use it regularly for your work.

Step #4: Estimate how much you owe

Determine your net profit or loss, and report this on Schedule C or C-EZ (Form 1040). The amount is then transferred to your personal tax return, which will determine your total tax liability.

Calculating your freelance tax bill

To calculate, subtract your business expenses from your business income. This gives you your net self-employment income. Next, multiply that by 92.35% (to account for the employer portion of the self-employment tax), and then by 15.3% to find your self-employment tax bill.

Step #5: Figure out your pay schedule

Most self-employed individuals are required to pay estimated tax quarterly, not annually. These dates are in April, June, September, and January.

Step #6: Determine if you’re required to file

Remember, even if you don’t owe any self-employment tax because your business didn’t profit, if you had more than $400 in self-employment income, you’ll need to file a return.

Step #7: Fill out your tax forms

The IRS requires different forms based on your business type. Generally, you’ll need Form 1040 (Individual Income Tax Return), Schedule C (Profit or Loss from Business), and Schedule SE (Self-Employment Tax).

The key to stress-free tax filing for self-employed individuals lies in the meticulous record-keeping of income and expenses, understanding which form for self-employment to use, and making estimated tax payments. With a proper understanding of how to file self-employment taxes step by step, you can confidently navigate your tax obligations and focus on growing your business.

Preparing your own taxes as a self-employed individual can be a bit intimidating. But remember, knowledge is power. The more you understand your tax responsibilities, the better equipped you’ll be to manage them effectively.

Remember: taxes don’t have to be taxing. Follow these seven steps, and you’ll be on your way to conquering self-employment tax season like a pro.

FAQs:

1. What is the self-employment tax rate?

   • The self-employment tax rate is 15.3%. It comprises 12.4% for Social Security and 2.9% for Medicare.

2. How do I calculate my freelance tax bill?

   • Subtract business expenses from your business income to get your net self-employment income. Multiply that by 92.35%, then by 15.3% to find your self-employment tax bill.

3. What forms do I need to fill out for self-employment tax filing?

   • Typically, you’ll need Form 1040 (Individual Income Tax Return), Schedule C (Profit or Loss from Business), and Schedule SE (Self-Employment Tax).

Posted: 07/11/2023