Self-Employment Taxes Tax Tips & Videos

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Staying Ahead with Estimated Taxes

Your filing status affects how you file your taxes and the tax rates that apply to you. Knowing your status (e.g., head of household, married filing jointly, or single) can help you file self-employed taxes accurately. A sole proprietor is someone who owns an unincorporated business by themselves. Put simply, it’s a one-person business or side gig in which you take home the profits but are also responsible for any debt. As a solopreneur, you have the responsibility of paying quarterly estimated tax payments for both income tax and self-employment taxes. If you fail to make these periodic payments or you underreport your income, you may be subject to penalties and interest.

We’ll break down tax obligations and considerations, including deductions, credits, and filing across different working arrangements. If you have one or more side jobs, filing your taxes isn’t much different unless your jobs and sources of income are very different from one another. If they are very different types of gigs, then you may need to attach multiple Schedule Cs to your tax return to report each type of business. When figuring self-employment tax you owe, you get to reduce self-employment income by half of the self-employment tax before applying the tax rate. Say, for example, that your net self-employment income is $50,000.

• Choose TurboTax Live Assisted Deluxe to get unlimited expert advice as you do your own taxes or TurboTax Live Full Service and let an expert do taxes for you, start to finish.
• If you’re in business for yourself and have no employees, you can contribute up to $23,000 in pre-tax earnings to a Solo 401(k) plan (tax year 2024).
• On the other hand, if you own an S-Corp, you must always file taxes for your small business, even if it didn’t make any money.
• For this reason, sole proprietors often purchase business insurance to help protect their personal assets.

So, if you’re venturing out on your own as a new sole proprietor, you’ll have a basic understanding of the federal tax code provisions and IRS rules that apply to you. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund—guaranteed. You can also use QuickBooks Solopreneur to track your income, expenses, and mileage.

Other taxes paid by sole proprietorships

An expense doesn’t have to be indispensable to be considered necessary. Any profit or loss calculated on Schedule C is then carried over to Schedule 1 of your 1040 form. From there, it’s added to the rest of your taxable income (or subtracted from it if you have a loss). Sole proprietors are also subject to a special self-employment tax, which helps fund Social Security and Medicare (although you can deduct 50% of the tax you pay). Plus, if you have employees, you’ll have to withhold, pay, and report payroll taxes for them as well.

Frequently asked questions

For the 2024 tax year, the standard mileage rate is 67¢ per mile driven for business use (increasing to 70¢ per mile for 2025). This is a good option if you don’t want to keep track of all your gas, oil, repair, and other costs of using your car for business. You can claim 67 cents per mile for business miles driven in 2024 or 70 cents per mile in 2025, plus the cost of parking and any tolls you paid. Be sure to track your business mileage so that you have substantiation for your mileage deduction. Maybe you’ve started your own business or taken on a side gig.

How long does it take to file your taxes with TurboTax

• So, for example, you can’t deduct expenses for a room in your home if you use the space both for business and personal activities.
• The offers that appear on this site are from companies that compensate us.
• You’ll usually have to accompany Schedule C with Schedule SE, which you use to calculate your self-employment tax, aka the Social Security and Medicare taxes you owe based on your income.
• Compare that to the cap on IRA contributions—$7,000 ($8,000 if 50 and over) for 2024 and 2025.

You have to go through some additional steps in this section before transferring that loss to your 1040, because it may not be fully-deductible. The 100% expensing is also available for certain productions, such as qualified film, television, and live staged performances, and certain fruit or nuts planted or grafted after September 27, 2017. This bonus «expensing» should not be confused with expensing under Code Section 179 which has entirely separate rules, see above.

As a result, the owner can be held personally liable for the debts and legal actions taken against the business. For this reason, sole proprietors often purchase business insurance to help protect their personal assets. Unlike other types of businesses – such as partnerships, limited liability companies (LLCs), and S corporations – you don’t have to register or formally do anything special to form a sole proprietorship.

As a self-employed individual, you’re responsible for paying both the employer and employee portions of this tax, which can range from 12.4% to 15.3% of your net earnings from self-employment. For example, if you sell cake toppers on Etsy and also drive for a ridesharing company, you will have to report the income and expenses for those businesses on two separate Schedule Cs. However, if you sell cake toppers on Etsy and also have a business of making and selling cakes you could combine those businesses on one schedule C as these businesses overlap and are in the same line of work. This change will impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.

You must also file Form 940 annually to report the FUTA taxes you paid for the previous year. The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. However, only 92.35% of your net earnings from self-employment is subject to the tax. You’ll also have to file a separate form to calculate your self-employment tax and the 50% deduction. Both the tax and the deduction ultimately find their way to your Form 1040, too.

But as mentioned earlier, you can also deduct 50% of the self-employment tax you must pay. Establishing a sole proprietorship is typically straightforward and less costly than setting up other business entities. There is usually less paperwork and fewer regulatory hurdles. A sole proprietor can cease business operations without much formal procedure, too.

If you have expertise in a specific area and can make a living doing it on your own, you are in the enviable position of being your own boss. I stored everything in a pretty box near my desk so I would be ready for when tax season rolled around. You may not think of yourself as running a business, but you’re considered self-employed if you engage in business-like activities. The key to determining if you’re self-employed is to assess if you’re in business for yourself or are the owner of your own business.

responses to “How to File Self-Employment Taxes”

The expert will complete and submit your business tax return using the tax documents you upload. They’ll keep you updated throughout the process, and you can contact them with questions or concerns anytime. As with Live Assisted Business, you’ll get on-demand tax support throughout the year at no additional charge.

The first $11,925 would be taxed at the 10% tax rate, and the remaining $33,075 would be taxed at 12%. Once you’ve entered all your deductions, subtract them from your gross income to get your net Schedule C profit or loss. 100% accurate calculations, audit support, and your max refund. Whether our experts prepare your tax return or you do it yourself, guarantee our calculations are always 100% accurate, or we’ll pay any penalties. You’ll also need records of the business income you earned, plus business expenses and, if applicable, the cost of goods sold.