Chances are if you worked independently during 2015, and made over $400.00, you will most likely have to file a Schedule SE. The Schedule SE is used to report self-employed taxpayer income. To qualify as self-employed, your business can be full-time or part-time. You can also work as an employee. If you are self-employed and living in the Owing Mills area of Maryland, Professional Accounting Center, Inc. can help you file properly.
If you are trying to determine whether your relationship with your employer qualifies as self-employed, consider the determination for independent contractors through the IRS and state of Maryland. If you and an employer have signed a contract, this is an indication that you may be an independent contractor. The contract covers the terms of employment and defines a working relationship for a limited period of time, or until a specific task is completed. Another indicator that you may be self-employed is your schedule. If you are not required to follow a set weekly schedule and instead determine your own schedule as needed to finish the project or task assigned to you, you may qualify as self-employed rather than as an employee. Similarly, if you are your own manager, you may be self-employed. This means that your employer does not have the right to dictate the methods or path to achieve the final result of your task, and you are focused on result rather than process. Finally, if you send an invoice for payment once a job or milestone is completed, that is almost a sure sign that you will not file taxes as an employee, and instead will claim your earnings as self-employed income.
If you were self-employed in 2015, you will first need to file the Schedule C. The Schedule C reports in detail your income and expenses for the year, and illustrates proof that you’ve seen either a gain or loss. To file your Schedule C, you’ll want to collect your income records, because this is what you’ll be paying taxes on. Customer receipts, invoices, returns, and bank statements are all eligible proof of income. Most online bank account management systems will allow you to download your transaction history, so if you are computer savvy and have an online account, paying for business expenses with your business account is a great way to keep track of your expenses. However, since some transaction descriptions may be difficult to understand, it’s always best to keep a written expense log in order to track your business purchases as well. If you do not have a bookkeeper, finding one who can help you calculate your income is extremely helpful, especially if you are working in a service based industry without tangible goods.
Filing the Schedule C also requires you to report your losses. Your losses are going to apply back to your income as a deduction, and will serve to lower the taxable income you’ve received through self-employment. If you have an inventory, your purchases of items sold can be deducted. You can also claim supplies that are needed to run your business. The Internal Revenue Service and state of Maryland allow you to claim advertising expenses, business trips, subcontracted payments, insurance, office supplies, rent, and office costs. You can also claim employee wages and legal fees. Providing proof in the form of receipts, mileage logs, invoices, and bank statements is essential when deducting expenses on a schedule C. Since it is a common form of tax fraud, misinformation or failure to provide supporting documentation can raise red flags for the Internal Revenue Service, and may result in an audit. However, failure to claim all of your expenses could result in an income that is inaccurate or higher than your actual profit for the year, subjecting you to taxes you shouldn’t have to pay.
Once you’ve filed your Schedule C, you will determine based on the results whether you have shown a profit or loss for the year. If you show a profit of $400.00 or more, you will file the Schedule SE. If you have more than one business, you will combine the net profit or loss from each. The resulting total will be your income or loss, and will determine the amount of earned income that is subject to tax. If your businesses showed a net loss, you won’t owe self-employment taxes, but you will still need to file Schedule C to report your loss. When you complete your personal income tax form, you can deduct half of your self-employment tax from your gross income, but it doesn’t have any effect on your net earnings or the amount of self-employment taxes you pay, and is deducted on your 1040 income.
The self-employment tax rate is 15.3 percent. You are paying taxes as both the employer and the employee. You do, however, get a tax deduction for half of the taxes paid toward your gross income.
The Schedule SE can be tricky on your own, since there are specific guidelines associated with it’s filing process. To speak with a tax professional in Owing Mills, Maryland, click the link below. You will be able to contact an expert from Professional Accounting Center, Inc.
Margaret Tabb