Six Helpful Tax Tips for the Self-Employed

Did you earn income carrying on a trade or business? If so, you are considered a self-employed taxpayer. Furthermore, if your net earnings from self-employment were $400 or more, you are required to file an income tax return. Taxes for the self-employed can be complex to work with, but fear not, because we have some tax tips to share with you!

  1. Categories of Self-Employed Taxpayers. Sole proprietors and independent contractors are two types of self-employment. Visit the IRS Self Employed Individuals Tax Center. website for further information.
  2. Estimated Tax Payments for the Self-Employed. Generally, individuals who are self-employed are required to make quarterly estimated tax payments. IRS Publication 505 entitled, “Tax Withholding and Estimated Tax,” details how to go about making these estimated payments.
  3. Schedule C or C-EZ. Along with their Form 1040, self-employed taxpayers file a Schedule C entitled, “Profit or Loss from Business,” or Schedule C-EZ entitled, “Net Profit from Business.” Schedule C-EZ is used for expenses less than $5,000.
  4. Self-Employment Tax. Self-employment and income tax may need to be paid for those making a profit. Social Security and Medicare taxes are included in the Self-Employment Tax. The amount of the tax can be calculated by using Schedule SE, Self-Employment Tax.
  5. Allowable Deductions. Expenses that are incurred by taxpayers to run a business and are considered to be both ordinary and necessary in the context of the business can be deducted, so make sure to save your receipts as proof! An ordinary expense is defined as one that is common and accepted in the industry. A necessary expense is defined as one that is helpful and proper for a trade or business.
  6. When to Deduct. Generally, taxpayers can deduct expenses in the year paid or incurred. In some contexts, however, costs are ‘capitalized.’ This means that the cost will be deducted over a number of years.


Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.