If self-employed, this is the time of year to start thinking about getting ready to file taxes. Filing taxes for the self-employed is different from if one works for an employer. A business owner must file and pay their own taxes.
Here are the steps to take in paying taxes when self-employed:
Are you truly self-employed: If a person owns a business for themselves either part-time or full time, then they are self -employed. The person could be considered an independent contractor or a freelancer as well. If the business makes a net profit of over $400, then the IRS requires them to file taxes.
Type of business: Determine what class of business you fall under to make sure the business follows the right rules. The business could be a sole proprietorship, a partnership, an S or C-corporation or an LLC.
Collect 1099s: Put together all 1099s from clients that the business contracts with throughout the year.
Put together all receipts: This is important if the business is going to claim deductions. Having all receipts as proof is crucial if the IRS decides to audit the business.
Schedule C form: Fill out this form along with a Form 1040 and submit to the IRS.
Determine what to pay: Establish how much is owed based on past earnings using the self-employment tax rate of 15.3%.
Pay quarterly or annually: A self-employed person can choose to pay taxes quarterly or pay all at once every year. Even if the preference is once a year, it’s a good idea to set aside some money every month for taxes.
Filing self-employment taxes can be quite overwhelming. It is important for these taxes to be filed correctly and ensure all possible deductions the business qualifies for are withheld. Call Raleigh Bookkeeping today, we are a full service bookkeeping and small business consulting firm. We specialize in helping you!