The number of people who are self-employed rather than (or in addition to) holding conventional jobs continues to increase as the “gig economy” grows. Paying taxes when you are self-employed can be a confusing process for those who are just starting down this path.
When Do You Have To Pay Self-Employment Taxes?
The IRS and state governments may have different rules for determining who is self-employed. The IRS has guidelines to help you verify your employment status, but it is ultimately decided on a case-by-case basis. If you have your own business and no one else controls how you do your work, that can mean that you are self-employed. Self-employed workers usually get a 1099 form from any businesses with which they work.
What Can You Deduct on Your Taxes?
While independent contractors usually have a higher tax rate than those who have traditional employers, there are many unique deductions that you may take. For example, you can deduct the cost of your office space, even if that office is in your residence. You will have to measure the space and use the IRS website to calculate how much that space costs you to maintain. This includes any technology you use in your office, like your computer, printer, wireless internet or VOIP phone account. You may be able to deduct part of your self-employment taxes on your annual tax return as well.
How Do You Remit Taxes That You Owe?
State revenue departments and the IRS require you to pay self-employment taxes on a quarterly basis. You can find the tax due dates for each year on their websites. A traditional employee has income, Social Security and Medicare taxes automatically deducted from their paychecks, but sole proprietors must pay these on their own. The IRS provides a worksheet within their 1040-ES form to help you figure out how much you owe. Your state may have an online calculator or form for this as well.