Though self-employment could potentially earn a lot of money, having your taxes in order is very important, according to an article on About.com, a website owned by the New York Times Co.
Some forms to start out with include:
- Schedule A — Reports personal expenses to the IRS like medical, interest, and gifts to charity.
- Schedule C — Reports business income/expenses to the IRS.
- 1099 — Each year, clients report the money spent on individual contractors to the IRS. A copy of this form is also given to contractors to declare business income in their schedule C.
- 1040 — The general tax form used by everyone. Expenses declared on this form could change for freelancers depending on whether they post a profit or a loss for the year.
The IRS automatically detects when the income reported on the Schedule C is less than what shows up on your 1099 forms, said William Perez, a tax professional who contributes to About.com.
Fortunately, self-employed individuals can deduct expenses from their taxes, though they should take care not to abuse it. Use spreadsheets to track the date and time, who was paid, category and the cost of all your expenses. Try sticking to the expense categories found in the Schedule C form, though other categories can be reported.
If you pay for your own health insurance, you can deduct your premiums on the 1040 form. If your business doesn’t make a profit, you should deduct health insurance premiums using Schedule A instead of filling in line 31 of the 1040 form.
Though deductions can be made, freelancers should be careful. If your business posts a loss more than two out of every five years, it could be considered a hobby, which could trigger an audit.
Other tips for filing taxes as a self-employer include deducting business assets, your home office and choosing between depreciation or Section 109.
- BYU grad strikes gold teaching via online...
- San Diego Comic-Con tells Salt Lake...
- Healing souls, healing a mountain
- Dave Ramsey says: Don't leave an estate with...
- Plan to simplify 2015 health renewals may...
- Fast food workers vow civil disobedience
- Does getting married really increase wealth...
- Balancing act: Survey says lack of balance,...
- Renewable energy advocates decry... 19
- Fast food workers vow civil disobedience 13
- San Diego Comic-Con tells Salt Lake... 11
- BYU grad strikes gold teaching via... 10
- Dave Ramsey says: Don't leave an estate... 9
- Does getting married really increase... 8
- Balancing act: Survey says lack of... 4
- 3 ways you can save money on movie... 3