28 Self-Employed Tax Benefits and Deductions
How to Report Self-Employment Income
Learning the self-employed tax benefits and deductions is essential as part of your tax planning. Self-employed businesses must complete Schedule C Profit and Loss from Business and report all your business income and related tax deductible expenses and include the Schedule C when filing your Form 1040 tax return. When you are self-employed you’re considered by the IRS to be running your own business even if you’re a subcontractor or independent contractor for another business and they do not withhold federal taxes.
Taxes for Self-Employed Business
Usually if you’re self-employed then you must pay for all your business expenses out of your own pocket and if those expenses are reasonable, then you can deduct them directly from your gross income. Take advantage of the tax benefits that relate to your company. The income tax for a self-employed business is computed by deducting the business expenses from the gross income to obtain your net profit.
Your net profit is then added to your other income on your tax return to compute your federal income tax liability. In addition to paying federal tax on your self-employment income which is the same as your net profit, you are also required to pay self-employment tax which is comprised of the employer portion of Medicare and Social Security taxes. You are required by the IRS to pay estimated tax payments quarterly to the IRS since you are self-employed and not working for a company that withholds federal taxes from your paycheck each week and send it to the IRS.
28 Self-Employed Tax Benefits and Deductions
Advertising
Auto expenses
Contract labor
Employee benefits
Liability insurance
Auto interest
Legal fees
Tax prep fees
Dues and subscriptions
Professional fees
Office expense
Retirement plan contributions
Rental equipment
Office rent
Repairs and maintenance
Supplies
Internet expense
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Cell phone expense
Employer taxes
License fees
Seminars
Educational expenses
Airfare and hotel expenses
Business meals
Business entertainment
Utilities
Employee wages
Home Office expenses
There are thousands of additional self-employed tax benefits and deductions for your business so ask your accountant for help and to educate you on how to minimize your taxes. In addition to the Schedule C form you are required to complete several related tax forms and worksheets if applicable such as:
Auto expense worksheet,
Social Security tax computation worksheet,
Cost of Goods Sold schedule if you have inventory
Home Office worksheet
Accounting and Bookkeeping Records
In order for business expenses to qualify for tax-deductible status, the IRS requires expenses to be ordinary, customary, and necessary. Make sure your keep all your receipts and document all your expenses. Maintaining a filing system and adequate records on meals, travel, and auto expenses is extremely important and also understanding the IRS rules will keep your in compliance.
Hire an accountant to create an accounting and bookkeeping system for your company and to provide you with periodic financial statements. It is important to keep your records up to date so you can calculate your tax liability throughout the year. Your accountant will compute your quarterly taxes and educate you in tax planning and tax strategies to lower your taxes.
Contact our tax professionals and accountants at the 1040 Tax Center for a free confidential consultation.