The holidays are often the favorite season of many around the country. After the holidays rest a four-month long season that is a favorite among tax professionals - tax season. While it is an opportunistic time of year for everyone in the tax industry, it is often loathed among independent contractors and the self-employed.
Individuals who are self-employed often dread tax season because it is finally the time of year to pay up on Social Security and Medicare taxes, which are calculated near a rate of 15 percent of income throughout the previous year. No matter if you're self-employed or a W-2 employee, taxes are an obligation we must pay.
Tax season doesn't have to be a chore with these four self-employment tax tips from the Internal Revenue Service:
1. Income is still taxable even without the form
You should receive a Form 1099-Misc if you made more than $599 from a company as an independent contractor. This form is used to report miscellaneous income. However, even if you make less than the $599 threshold from a company, your income is still taxable.
Self-reporting income of less than $599 is the easiest way to avoid an audit or further legal trouble down the road.
2. Pay in portions throughout the year
Self-employed individuals can calculate their estimated yearly tax obligation using a Form 1040-ES.You can then use the number found through this calculation to pay estimated quarterly taxes to the IRS. This method can help you avoid a larger burden when it is time to file your taxes. Further, the IRS may impose a small penalty if you do not pay quarterly.
3. Use separate bank accounts and workspaces
You are more likely to be audited by the IRS if you are self-employed. To have a clear and distinct paper trail of your expenses, use a checking account or credit card specifically for work-related expenses.
Secondly, even if you work from home, you should designate a separate office space. This can be as easy as having a two-bedroom apartment and turning one bedroom into an office.
Remain in control of your income
Self-employed individuals enjoy what they do because it provides for a flexible schedule and independent lifestyle. Through regular self-reporting of income and quarterly tax payments, independent contractors can relieve some of the burden felt during tax season.