IRS Tax Tip 2014-34, March 17, 2014
If you are an independent contractor or run your own business, there are a few basic things to know when it comes to your federal tax return. Here are six tips you should know about 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 from 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. Make sure to file the schedule with your tax return.
- You may need to make estimated tax payments. 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 expense each year over a period of years.
- You can deduct business costs only if they are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
Visit the Small Business and Self-Employed Tax Center on IRS.gov for all your federal tax needs. You can also get IRS tax forms and publications on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
More IRS resources
- Form 1040-ES, Estimated Tax for Individuals
- Publication 505, Tax Withholding and Estimated Tax
- Publication 334, Tax Guide for Small Business
- Publication 535, Business Expenses
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