Are You Self-Employed?
Generally, you are self-employed if any of the following apply to you.
- You carry on a trade or business as a sole proprietor or an independent contractor
- You are a member of a partnership that carries on a trade or business.
- You are otherwise in business for yourself (including a part-time business)
Tip # 1 Avoid Forgetting About Taxes
Self-Employed Tax Obligations
As a self-employed individual, you are required to file a Schedule C along with your income tax return. The Schedule C details the income and expenses of your business. What individuals tend to forget is making their estimated quarterly tax payments as well as their portion of self-employment tax. Self-employment tax refers to the company’s portion of Social Security and Medicare taxes.
How To Make Estimated Quarterly Tax Payments?
Form 1040-ES is used to calculate these taxes. Use the worksheet found within the form to find out if you are required to file quarterly estimated tax. Blank vouchers are also included within the form to mail your payments, or you may utilize the Electronic Federal Tax Payments System.
Penalty for Underpayment of Estimated Tax
If you didn’t pay enough tax throughout the year you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. Use Form 2210 to calculate any penalty owed for underpaying your estimated tax.
Tip # 2 Review Available Business Structures
Types of Business Entities
There are several types of business entities, each designed for different situations. The different types of entities are: Sole Proprietorship, Partnership, Corporation, C Corporation, S Corporation, and Limited Liability Company. Advantages and disadvantages exist for them all. Having a trusted advisor review your business structure may save you money.
Tip # 3 Keep Your Data Current
Tracking The Numbers
Having current data to analyze your business should help you make informed decisions. Tracking mileage expenses, separate business and personal expenses, maximizing your Schedule C deductions, and estimating quarterly taxes timely can all benefit you and your business. Finding a sustainable solution to accomplish all this is not as hard as you may think.
Long Term Sustainable Solution
We recommend utilizing QuickBooks Self-Employed to maintain all your records and keep a snapshot of your business only fingertips away. Leveraging this software will save you money and time. Some of the benefits include: Automatic mileage tracking, separate business and personal expenses efficiently, maximize your Schedule C deductions, Quarterly estimated taxes calculated automatically, send and track simple invoices.
Learn About Partnering with Clark Sclater, LC
Self-Employed Full Service CPA Bookkeeping
Partnering with a professional to assist you with the initial set-up and ongoing tracking is recommended. The Certified Public Accountants at Clark Sclater, LC offer these services for only $49-$99 a month including the software. Not only do we strive to provide maximum value to our clients, we will even give you the First Month Free!