Don’t Be Afraid to File Your Own Taxes If You’re Self-Employed

When it comes to “ being your own emboss, ” Americans seem to have it covered. About 15 million people in the U.S. are freelance, or 1 in 10 workers according to the Bureau of Labor Statistics. But when tax temper rolls around, many hire tax professionals and shell out return homework fees .A young woman wearing glasses and a blue shirt works on her laptop.

That ’ s all well and good, but if you ’ rhenium freelance and looking to save, DIY-ing your taxes — or using paid tax software — might be your best and cheapest filing option, particularly if you ’ ve got minimal expenses. You ’ ll need to track expenses and calculate deductions even if you hire a tax professional to file on your behalf, so if you ’ d like to cut down on planning fees, consider giving it a shot on your own first. here ’ s what you need to know if you plan to try it out .

The Skinny On Tax Software

If you ’ re comfortable with on-line filing, many tax software companies offer specialized services for little business owners. “ You truly don ’ t have to be a tax expert because the course of study walks you through and asks you questions, ” says Barbara Weltman, author of “ J.K. Lasser ’ s Small Business Taxes 2018. ” Simply gather your forms, relevant occupation expense receipts and other fiscal documents, then jump properly into the software of your choice and follow its prompts. If you ’ ve got questions, tax software companies broadly offer tax-related confirm via earphone or old world chat. You can besides check out the IRS freelance on-line tax concentrate.

How to Treat the Home Office Deduction

“ More than one-half of all businesses in the U.S. are home-based, so it ’ s not going to be something startling to the IRS to see a home-office tax write-off, ” says Weltman. In fact, the IRS ’ position is if you have a space you use regularly and entirely for business, you should take advantage of the home position discount. If that idea gives you pause, know that taking the home office deduction doesn ’ thymine automatically mean you ’ ll get audited .
The key to claiming any tax write-off is making sure you follow the rules. The IRS outlines them all here, but one thing to be sure of is that your position space is your principal place of business and used regularly and entirely for exercise. That means it doesn ’ thymine do double duty as a guest board or anything else. ( It doesn ’ t inevitably have to be a divide room, though. A corner of your bedroom with a desk, calculator, and files can work angstrom long as you use it entirely for commercial enterprise. )
In calculating the subtraction, you have two options. One is to claim the simplified home office discount, where you deduct $ 5 per square foot of your home office ( up to $ 1,500 and 300 squarely feet ). The second is to calculate all of your actual expenses, which includes both direct and indirect costs. For indirect costs, items like mortgage interest, taxes, care costs, indemnity and utilities, you must determine what percentage of the sum price was used entirely for your occupation space. lone that helping is tax deductible – not the integral cost .
And, as a final note, regardless of which method acting you choose, your deduction is limited to your net business income. That means, if you experienced a business loss for the year, the home office deduction will not decrease your tax liability far.

The Lowdown on Self-Employment Tax

There ’ s no doubt being freelance is a little more complicated when it comes to taxes than working for a traditional employer. As a freelance individual, you have to calculate and pay the self-employment tax ( SE ), which covers your tax requirements for the Federal Insurance Contributions Act ( FICA ). FICA funds Social Security and Medicare. When you work for a traditional employer, your employer covers half of the tax for you. You, of course, pay the other half .
But, when you ’ ra freelance, you are on the hook for all of it since you ’ re both the employer and the employee. The SE tax is 15.3 percentage of your self-employment income and is divide from the federal income tax. To cover that added cost, it ’ mho worth planning out your cash menstruate for the stallion year and understand “ that you ’ re not just paying unconstipated income tax — that you ’ re paying this extra come of 15.3 percentage, ” says Andrew Oswalt, tax analyst at TaxAct .

Get Your Quarterlies Straight

You ’ ll by and large need to pay quarterly estimated taxes if your tax liability for the year is $ 1,000 or more. Since the IRS expects to receive tax payments as you earn your income, you ’ ll likely necessitate to make estimate tax payments four times a class — in April, June, September, and January of the following year. The first payment for the stream year is due the lapp day your last class ’ s tax rejoinder file deadline. And flush if you file an extension, you ’ ll even need to pay that same day .
To avoid palpate strapped for cash when each requital deadline comes around — and to avoid the steep underpayment penalties if you don ’ thyroxine pay enough throughout the year — it ’ s authoritative to account for all of your tax responsibilities ahead of time and set that money away. “ When you don ’ deoxythymidine monophosphate pay quarterly tax payments, or you don ’ deoxythymidine monophosphate pay adequate tax by the due date of each payment period, you may be charged a penalty at the end of the year, even if you ’ re due a refund, ” says Holly Reisem Hanna, fall through of The work at Home Woman. “ be indisputable to mark your calendar for the quarterly tax due dates. ”

The best way to plan for your quarterly payments is to follow the estimate tax condom seaport govern, which says to pay 90 percentage of the tax shown for the current year ’ s return or 100 percentage of what you owed the previous tax year. “ For most people, it ’ ll be 100 percentage of what you paid the former tax year, ” says Weltman. If you are marital and had an adjusted crude income over $ 150,000 in the previous tax class ( or over $ 75,000 if married filing individually ), you ’ ll probable pay the lower of two options. TaxAct can help you quickly calculate the sum you owe and set up quarterly payments, so you ’ re covered throughout the year .
With Hayden Field. This blog by Jean Chatzky is in partnership with TaxAct .

All TaxAct offers, products and services are subject to applicable terms and conditions.
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Category : Finance

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