Self-employed taxpayers normally earn income
by carrying on a trade or business. Here are six important tips from the IRS for the self-employed: Self-Employed Taxpayers. Sole proprietors
and independent contractors are two types of self-employment. Taxes can be complex for
the self-employed. Check out the IRS Self Employed Individuals Tax Center. Estimated Tax. Self-employed taxpayers generally
need to make quarterly estimated tax payments. IRS Publication 505, Tax Withholding and Estimated
Tax, has details on making those payments. Schedule C or C-EZ. Self-employed taxpayers
must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from
Business, with their Form 1040. For expenses less than $5,000, use Schedule C-EZ. Each
form’s instructions provide the rules for which form to use. SE Tax. For those making a profit, self-employment
and income tax may need to be paid. Self-employment tax includes Social Security and Medicare
taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. Allowable Deductions. Taxpayers can deduct
expenses paid to run a business that are both ordinary and necessary. An ordinary expense
is one that is common and accepted in the industry. A necessary expense is one that
is helpful and proper for a trade or business. When to Deduct. In most cases, taxpayers can
deduct expenses in the year paid or incurred. Some costs must be ‘capitalized,’ however.
This means deducting the cost over a number of years.
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using
a software product for the first time may need their Adjusted Gross Income (AGI) amount
from their prior-year tax return to verify their identity. Taxpayers can learn more about
how to verify their identity and electronically sign tax returns at Validating Your Electronically
Filed Tax Return.