Filing Tax - Tips for the Self-Employed
If you are self-employed, you may need to know a few tips to filing taxes. It is especially important to prepare your taxes in such a way that you don’t attract negative attention from the IRS. That means do not put down expensive trips, large charitable donations and be careful when deducting your home office expense.
Large corporations can get away with a lot of deductions, and have the expertise in finding loopholes; but the average self-employed individual needs file a clean and honest report.
There is great tax software that can help you file like a pro. You have many options available to, so just pick one and get started!
Tax Preparation Software
Free Tax USA, is free to file federal taxes and for state taxes they charge $9.95. They also offer a deluxe version that has added feature to assure you taxes are done properly so you don't trigger an audit.
TurboTax, offers free filing for 1040EZ and simple tax returns. They also have business software for home and small business for State and Federal or just Federal for sale.
TaxAct, offers free online preparation, filing or if you want to print it out and mail it in you can do this as well.
Calculate your gross earning from your business and subtract any business deductions or losses that are allowed. Things you don't need counted is stock dividends, proceeds from bonds except if you are a stock dealer. If you earn $400 or more a year you must still report those earning on Schedule SE!
Begin early to gather your taxes information and financial receipts. Make sure that you have receipts for everything you plan to deduct. Go easy on the home office deductions to avoid an audit.
Security and Medicare taxes
This year the tax rate for self-employed workers is 13.3% for earnings up to 106,800. Any amount over this you will pay solely 2.9% on that portion of earnings.
Two things that can lower your self-employed taxes. First, your net earnings from self-employment is reduced by half of your total Social Security tax. The employer's portion of SS tax is not recognized as wages to the employee. You are the employer as well as the employee.
You are allowed to deduct half of your SS tax on your IRS 1040 form. This deduction has to be deducted from your gross income without itemization listed on your Schedule C.
The optional method is allowed five times period!
If your net earnings are less than $400, your earnings can still count for Social Security under an optional method of reporting. This method can be used if your gross earnings are $600 or more or when your profit is less than $1,600.
Your actual net must have been $400 or more in at least two of the last three years, and your net earnings must be less than two-thirds of your gross income.
* If gross earning from self-employment between $600 and $2,400, report two-thirds of those earning or your actual net earnings
* If your gross earnings are $2,400 or more and the net earnings are $1,600 or less, you are entitled to report either $1,600 or your actual net earnings.