Help Yourself with these Independent Entrepreneur Tax Tips
If you live and – more importantly work – by the motto “You’re not the boss of me!” then read on. When you’re self-employed, you either work for yourself, as an independent contractor, or own your own business. Despite this independence, you’re still accountable to at least one person, Uncle Sam, and you have to play by his rules even if you set your own hours. Yes, pick any 18 hours a day, 7 days a week; welcome to self-employment!
So, let’s say that you have a regular nine-to-five job, but you also do a little bit of this and a little bit of that on the side. Self-employment income can include pay that you receive from that part-time work done from home. That is income earned in addition to your normal job.
Therefore, it is important to determine if you’re self-employed or not. Any income you earned and for which you DO NOT recieve a W2 at year end for that income, is self-employed income. Any and all self-employed income must be reported and filed via a Schedule C aka “Profit or Loss from Business,” or a Schedule C-EZ, with your personal income tax return Form 1040. Oh, keep in mind that the minimum tax imposed on these self-employed income is at least 15%, which includes Social Security and Medicare taxes, in addition to your income tax. Furthermore. you may have to make estimated tax payments throughout the year, on the income that is not subject to withholding. If you don’t make those payments, you may get hit with a penalty when you file your return. Being your own boss isn’t sounding too good right about now, is it?
Well, at least you don’t have to worry about getting fired. And you’ll be able to deduct some business expenses for the costs you paid to run your trade. Most can be deducted in full, but some costs must be ‘capitalized’ – meaning you can deduct a portion each year over a period of years. Here’s the catch though: you can only deduct costs that are both “ordinary” and “necessary.” 
Finally, just because you’re self-employed doesn’t mean you have to figure everything out by yourself. For more answers, check out the IRS Small Business and Self-Employed Tax Center, Publication 334, Tax Guide for Small Business, Publication 535, Business Expenses, and Publication 505, Tax Withholding and Estimated Tax. Now go finish hanging up that Employee of the Month plaque above your desk.Sufen Wang, M.S. Accountancy
Wang Solutions, Long Beach, CA (562) 856-0793
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