How To File Taxes If You Are Self-Employed

Being self-employed comes with a unique set of responsibilities, especially when it comes to filing taxes. Whether you’re an independent contractor, a sole proprietor, or running a side gig, understanding your tax obligations is crucial. Here’s a comprehensive guide to help you navigate the process, including what you can deduct and the IRS forms you’ll need.

What Constitutes Self-Employment?

You are considered self-employed if you:

• Work as an independent contractor
• Operate a sole proprietorship
• Practice a trade as your business
• Have a side gig where you provide the necessary tools and services
• Are in any form of business for yourself

Filing Requirements for the Self-Employed

As a self-employed individual, you must file Form 1040 along with Schedule 1 and Schedule C. Depending on your specific situation, additional forms such as Schedule 2, Schedule SE, and Form 4562 may be required. When in doubt, consulting a tax professional is advisable to ensure compliance.

Business Tax Identification Numbers

Your personal tax ID number is your Social Security Number (SSN). However, your business should have its unique Employer Identification Number (EIN), which you can obtain by completing Form SS-4 online through the IRS. If you don’t have employees and your state doesn’t require a separate number, you can use your SSN for your business income.

Special Filing for Joint Business Ownership

If you and your spouse jointly own and operate a business, you can file as a qualified joint venture. This allows you to file two Schedule Cs (or Schedule Fs), splitting the income and expenses between both spouses.

Deductible Business Expenses

There are numerous expenses you can deduct from your self-employment income, which can significantly reduce your tax liability:

1. Vehicle Expenses: Deduct either the actual expenses (gas, oil, insurance, repairs) or use the standard mileage rate. Remember to keep detailed records.
   
2. Employee Wages and Salaries: Deduct reasonable wages paid for work directly related to your business, with proper documentation.
   
3. Advertising Costs: Include expenses for business cards, billboards, ad agencies, and more.
   
4. Office Supplies: Deduct costs for supplies necessary for your business operations.
   
5. Rent: Deduct payments for office space, equipment, or storage rental.
   
6. Banking and Professional Fees: Include bank fees, legal fees, and professional services like bookkeeping and accounting.
   
7. Maintenance and Memberships: Deduct minor repairs, cleaning, and membership dues for professional associations.
   
8. Startup Costs: Deduct up to $5,000 in startup costs immediately, with the remaining amount amortized over 15 years.

Depreciation and Amortization

The IRS allows for depreciation of business assets over their useful life. However, options like Special Bonus Depreciation and Section 179 deductions can provide larger upfront deductions for certain assets.

Conclusion

Filing taxes as a self-employed professional requires careful attention to detail and a good understanding of allowable deductions and required forms. By keeping meticulous records and leveraging available deductions, you can optimize your tax return. For personalized advice and to ensure compliance with all regulations, consider consulting with Austin & Larson Tax Resolution.