From Your Daily Journal — Bellonora McCallum provides helpful tax tips for self-employed workers. She writes:
There are different forms of self-employed business structures. Generally, the most common business structures include a sole proprietorship, a partnership, a limited-liability company and sometimes even a corporation. A company’s business structure will determine which income tax return a self-employed individual will need to file.
When an individual has become self-employed, the Internal Revenue Service may require him or her to file an annual tax return and pay an estimated tax quarterly. An estimated tax is a method used to pay tax on income on which taxes have not been initially withheld, which will include income from self-employment. Additionally, some self-employed individuals are required to pay a self-employment tax as well as their income tax.
Typically if an individual earns a salary, he or she is required to have Social Security and Medicare taxes withheld. Thus, the self-employment tax allows individuals who work for themselves to comply with the required Social Security and Medicare tax.
In order for individuals who are self-employed to determine if they are obligated to pay the self-employment and income tax, they must first determine their business’s net profit or net loss. If a self-employed individual’s net earnings are $400 or more, then he or she will be required to file an income tax return.
There are so many benefits to consider when individuals choose to work for themselves. One of the major advantages of becoming self-employed is the possible tax deductions. The most common tax deductions include home office, Internet and phone, education, meals, travel and car.
If a self-employed individual has an office in their home used exclusively for business, the cost of the space may be deducted as a home office expense. Additionally, an individual may be able to deduct their business phone, fax and Internet expenses. This particular deduction can be taken even if they are unable to claim a home office expense.
If a self-employed individual participates in educational classes or seminars related to sustaining or updating their skills and services for their current existing business, he or she may be able to deduct those expenses.
Individuals who are self-employed sometimes tend to incur travel expenses for business purposes. In those cases, a meal can be considered a business expense if the individual is traveling specifically for business or entertaining a client. However, only 50 percent of the meal’s actual cost is able to be deducted.
Moreover, certain expenses obtained while traveling for business may qualify for deductions. Particularly, the cost of transportation to and from the individual’s destination and lodging. But, travel expenses will only qualify if the following applies: the trip lasts longer than one workday, the trip will require overnight lodging and the trip was planned for a specific business purpose.
Lastly, many self-employed individuals use their personal vehicles as a major source of transportation. When an individual uses his or car for business purposes, the expenses for the mileage are tax-deductible. It is very important to understand that these deductions are only available if excellent records and receipts are maintained for all expenses.
Read the full story at Legal Corner: Tax tips for self-employed workers