What You Should Know For Your Taxes If You’re Self-Employed
Running your own business is a rewarding achievement. Your focus is dedicated to growth and getting the revenue you desire. When it comes to taxes, you don’t always have the time.
Self-employment taxes are confusing and intimidating, but a necessary topic for those who run their business themselves. Here are five tips to help you navigate self-employment taxes:
What are itemized and standard deductions
As a business owner, you can claim itemized or standard deductions on your tax return. Itemizing your deductions allows you to claim specific expenses, such as charitable contributions, mortgage interest, and medical payments. This means that your taxable income will exclude those expenses, meaning you may not have to pay quite as much at the end of the year. On the other hand, if your itemized deductions don’t add up to reduce your tax hit, the standard deduction is another solution. Similarly, the standard deduction is a simpler route to choose if you don’t know what itemized deductions to claim.
Some common itemized deductions for business taxes include:
- Business-related expenses such as supplies, rent, and employee salaries.
- Travel and entertainment expenses, such as meals and lodging while traveling for business purposes.
- Interest expenses, such as mortgage interest on business property or credit card interest for business purchases.
- Charitable donations made by the business
- Business insurance premiums
- Professional fees, such as legal or accounting fees
The standard deductions are a fixed amount you can claim on your tax return to reduce their taxable income. The standard deduction is an alternative to itemizing deductions, which involves listing and claiming individual expenses. The amount varies based on the business’s filing status. For example, in 2021, the standard deduction for a business filing as a sole proprietorship was $12,400. The standard deduction is generally unavailable for businesses filing as a partnership or corporation. Businesses can claim either the standard or itemized deductions on their tax returns. It may be more beneficial to claim the standard deduction if the total amount of itemized deductions is less than the standard deduction amount.
Understand the self-employment tax
Self-employment tax is a tax assessed on self-employed individuals for Social Security and Medicare. It equals 15.3% of your net earnings from self-employment, which includes income from your business minus allowable business expenses for the aforementioned itemized deductions. Half of the self-employment tax can be claimed as a tax deduction on your tax return, which can help to reduce your overall tax burden.
As a self-employed individual you are responsible for paying your own self-employment tax, in addition to any income tax that may be due on your business income. You must report and pay your self-employment tax on their federal income tax return, using Form 1040 and Schedule SE.
Keeping track of your income and expenses
As a self-employed individual, it is important to keep accurate records of your income and expenses. This will help you report your income on your tax return and claim any allowable business expenses. You should keep your receipts, invoices, and other documentation to support your income and expenses.
Paying estimated taxes
If you expect to owe at least $1,000 in self-employment tax for the year, you are required to pay estimated taxes. Estimated taxes are paid in four installments throughout the year, with payment due on April 15, June 15, September 15, and January 15 of the following year. You can use Form 1040-ES to calculate and pay your estimated taxes.
How can Taxfyle help?
Understanding what deductions you can claim for your business can be confusing. On top of that, you need to keep it running smoothly. Don’t worry, there’s a solution to make filing taxes simpler.
At Taxfyle, we know how complicated taxes can be. We take the work out of your hands and hand it off to one of our Tax Professionals. When you file your taxes with Taxfyle, you’re connected to a member of our accounting network with the experience and knowledge necessary to help you make the most out of your tax returns.
Whether it’s understanding what to itemize or which credits you qualify for, our Pros can help. This tax season, make filing taxes easier by using a Pro.
With Taxfyle you can focus on your business and not worry about your taxes. With our reliable platform you have one less thing to worry about. Outsource with Taxfyle and destress.