For those who are self-employed, such as painters, freelancers and various other professions, the reality is that you may not always receive a 1099 from the various individuals who pay you, even though it is adding to your income stream. Without the typical W-2 or 1099, you may be wondering how you report that income. Consulting with your tax professional or accountant, such as M-E Accounting & Tax Services, Inc. in Cape Canaveral, FL, you can determine how to report the income you received based on your specific circumstances.
Add Up Your Income
As self-employed individuals, it is important to track all income received from all sources, including payments made by cash, check and credit card. This can be done using a standard bookkeeping software or other tracking method. Additionally, you will also need to track all the expenses related to your business. These could include utilities, purchasing of specific tools, subscriptions and other necessary day to day expenses.
Once you have a complete list of your expenses, then you will need to subtract those expenses from the total amount of income you received. This will give your net income, which must be reported on your 1040 tax return under miscellaneous income. The IRS provides a Form 1040 Schedule C, Profit and Loss from Business that can be completed to be sure that you deduct all the expenses from your business. After calculating your net profit, you will put that in line 12 of your 1040 tax return.
If you made over $400, then you will need to complete the Form for Self-Employment (SE). This will let you know how much you owe in terms of Social Security taxes and Medicare. You will need to make sure that these taxes are paid, although you will get a deduction for paying the employer share of the Social Security taxes.
Depending on the amount owed, you will either have a tax bill or a tax refund. If you have a tax bill, you will need to make a payment to the IRS for that bill, or make payment arrangements with the IRS to pay off the amount owed. If you are going to be self-employed throughout the next tax year, then you will want to consider making tax payment throughout the year to avoid having any tax penalties due.
Estimated Tax Payments
In is important to keep in mind that you should be determining your net income on a quarterly basis throughout the year. Once you do so, you will be able to make your estimated income tax payment to the IRS on a quarterly basis. This will help you to avoid any penalties and interest for not paying your taxes on timely basis.
To determine how much you may owe for your estimated tax payment, you will need to complete a worksheet provided by the IRS. This will assist you in implementing a quarterly payment schedule to meet the tax obligations you are incurring throughout the year. Keep in mind, you may find that you have overpaid and then you will be eligible for a tax refund.
Why would you want to make sure that you are making those estimated tax payments on a timely basis? The reason is that you are supposed to be paying your income tax on your income as you receive it. Hence, the need to make estimated tax payments to avoid a penalty for not paying your income tax promptly.
As part of your estimated tax payments, you will also need to make your Social Security and Medicare tax payments as well. Again, you want to make sure that these payments are made promptly to avoid any potential penalties and interest on your taxes.
Working with your tax professional, you can determine how much of a payment you should be making on a quarterly basis. They can also assist you in making sure that you have taken all your business expenses out prior to claiming your self-employment income. This will help you to get the right amount of income tax owed on your tax return. As you have seen, reporting your income is not complicated and the IRS is willing to work with taxpayers to come up with a payment schedule to pay any outstanding amounts owed.
Click on the link below to contact a tax professional or accountant at the offices of M-E Accounting & Tax Services, Inc. in Cape Canaveral, FL, who can assist you in accurately reporting your self-employment income and also making sure that you have accurately paid the full amount of taxes owed to avoid any penalties or additional interest payments.
M-E Accounting & Tax Services, Inc.