Companies will withhold your income taxes for you so you usually don’t have to worry about it. However, if you are self-employed, you have to take care of this yourself so it can be confusing. In the following article, we will go over what is required of you and what you need to do to comply with the IRS.
Your Tax Obligations
In addition to the typical income tax, you will also need to pay something called a self-employment tax, or SE tax for short. This covers a Social Security tax and Medicare tax that would usually be taken out by your employer, but you have to take care of yourself. Additionally, you then have to determine what your income is and pay taxes on that for the income tax.
Determining the Amount of Your Taxes
The first step to determining how much you owe is to figure out if your business made a profit or loss. If your income is more than your expenses, then you will have made a net profit of the difference between them. This profit then becomes part of your income as an individual and must be recorded. If the opposite is true, then you will have made a net loss and do not need to report it as income. It can then be deducted from your income, and thus reduces your income tax. You will be using Form 1040 and the profit or loss will be reported on page one. If the amount exceeds $400, you will have to pay an income tax on it.
This is the form that you will be using to file your income tax. It helps to calculate your taxable income, and then determine how much you have to pay. If the 1040 Form determines that you have overpaid, you then get a refund from the government. The current form is available here and can either be printed out or filled out via PDF on your computer. For a complete guide on how to use the form, the IRS put together a guide you can use if you have questions. The guide can be accessed by visiting the link here.
This is another form you will need to use to estimate the total taxes you need to pay. It can be found here and includes directions to help you fill it out and calculate totals. It also includes a voucher that you print out and then fills out if you are paying your taxes by mail.
When To Make Payments
Per IRS regulations, you will have to pay your taxes four times a year, every quarter. The due current dates are listed below:
Make sure to note that the final payment for the current year is not due until January of the following year. Also, if the dates are to change in future years, they will be listed on the 1040-ES form.
Annual Tax Return
Each year you will need to file a Schedule C form to report your profit or loss. The most recent form can found here and explicitly lays out all of the information you need. You will list your revenue, as well as all expenses related to your business. Using this form, the IRS will then determine if you have overpaid or underpaid your taxes for the year, and then mail you a check if you have overpaid.