09 Aug What you should know about filing taxes for self-employed individuals
By Atty. Crispin Caday Lozano
For independent contractors or those who run their own businesses, there are a few basic things to know when it comes to your federal tax returns. These are the basic tips when you make an income from self-employment :
- Self-employment income can include income you received for part-time work. This is in addition to income from your regular job.
- You must file a Schedule C, Profit or Loss for Business or Schedule C-EZ, Net Profit from Business, with your Form 1040.
- You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. This schedule should be filed with your tax return.
- You may need to make estimated tax payments. Most people typically make these payments on income that is not subject to withholding. You may be charged a penalty if you do not pay enough taxes throughout the year.
- You can deduct some expenses you paid to run your trade or business. You can deduct most business expenses in full, but some must be “capitalized”. This means you can deduct a portion of the expenses each year over a period of years in the form or depreciation or amortization.
- You can deduct business costs only if they are both ‘ordinary and necessary’. An ordinary expense if one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
It would help to have an accounting or bookkeeping system in place to account for your expenditures. Another useful tip is to segregate your personal and business expenses by maintaining a separate business account for the business and not commingle these with your personal expenditures.
Note: This is not a legal advice
Crispin C. Lozano, Esq. is an active member of the State Bar of California and held CPA license from the Philippines and State of Colorado. He has worked with SGV & Co. and has represented clients with the IRS and FTB. If you have an IRS or FTB tax debt that need to be resolve please call Taxsaverspro, Inc. at 1-877-456-9266 for a free confidential consultation. Taxsaverspro Inc. has a complete staff of Attorney and CPA who are ready to help. We have resolved hundreds of tax cases for our clients who have tax problems with Internal Revenue Service and Franchise Tax Board.