The Basics of Self-Employed Taxes

There are a lot of benefits to being self-employed. Becoming an entrepreneur affords you independence, the ability to follow your passion, and, just as importantly – financial rewards. However, income earned through self-employment is treated differently than income reported on a W-2. If this is your first time being self-employed, the thought of tax time may be intimidating. The good news is you don’t have to be an expert to file your return. Here are the basics of self-employment taxes to get you started. 

What is the self-employment tax?

The self-employment tax is essentially your portion of the Federal Insurance Contributions Act (FICA) tax.   

For employees who receive a W-2, FICA tax comes directly out of their paychecks. W-2 employees pay 7.65% on wages up to $147,000 for Social Security and Medicare (FICA), and their employers match this payroll tax, so the total paid per employee for FICA is 15.3%.   

As a self-employed worker, you are responsible for the entire 15.3% tax.  

Learn more: All About The Self-Employment Tax  

Do I also have to pay federal taxes?

The short answer is yes. Just as W-2 employees pay FICA and federal taxes out of each paycheck, self-employed workers must pay the self-employment tax and federal taxes.  

Whether you’re a full-time freelancer or do side projects for extra cash, you need to file an IRS Form 1040, U.S. Federal Income Tax Return, if you earned more than: 

  • $400 self-employed income  
  • $108.28 as a church employee 

Your business income will be reported on Schedule C, and your self-employment tax will be calculated using Schedule SE. Depending on your occupation, the IRS may report your income using a different form. You can see a list of the more common IRS Self Employment Tax Forms and how they are used for tax purposes. 

Can I deduct business expenses when I’m self-employed?

Yes. As a self-employed worker, there are certain expenses you can write off when you file your income tax return. For example, if you have a home office, you may be able to deduct a portion of those costs. You may also need to travel for your business. In that case, you could be deducting a certain amount for mileage.  

Other business expenses that could be deducted are things like advertising costs, business insurance, rent, education, meals, and more. Read through the necessary guidelines to see if your expenses qualify. Reporting all your qualifying expenses will help to lower your tax bill.   

Using TaxSlayer for self-employed taxes

Knowing which taxes you’re responsible for as a self-employed worker is a lot to manage–especially if you’re busy finding new business, maintaining the quality of your product and everything else that goes into working for yourself. That’s all the more reason to use TaxSlayer Self-Employed. TaxSlayer makes it easy to complete your forms, calculate your tax, and claim all the tax deductions and credits you deserve–at a fraction of the cost of the competition. Start using TaxSlayer for free today. 

This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.

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