Working for yourself has some major perks. You get to take on the work you want, complete it on your own timeline and charge rates you set yourself. Unfortunately, being self-employed also entails some less savory parts of business too — like taxes. But taxes don’t have to be the overwhelming task they’re made out to be.
Here’s what you need to know about tax forms, the documentation you need to collect and how to make the process easy and stress-free.
Forms You Need to File
What forms do you need anyway? Here’s a summary:
Miscellaneous Income (1099)
The W-2 is the staple of those who work full-time for someone else. As a self-employed individual, you’ll deal mostly with 1099s. Every client you earn $600 or more from, will send you a 1099 form. (For earnings less than $600, you still need to report the income but won’t receive the form from the client.) There are exceptions to this — mostly concerning third-party network transactions — which you can read about on this IRS page.
Social Security and Medicare Taxes (1040 or Schedule SE)
Social Security and Medicare taxes are separated when you work for another company; they’re combined into one tax (called the Self-Employment tax) when you work for yourself. Use a Schedule SE or Form 1040 to pay this tax. You can expect to pay 15.3 percent of your earnings toward the tax, but you also can deduct half of that percentage from your gross income (7.65), which is the portion normally paid by an employer.
Since state taxes differ for each state, form numbers also vary. Find your state’s tax information and forms on the Federation of Tax Administrators website.
Miscellaneous Forms (Schedule C, C-EZ or 1065)
If you’re self-employed and earn more than $400 (net) from self-employment, or if you meet any of the other filing requirements listed in the instructions for Form 1040, you must file an annual tax return by April 15 using Schedule C or C-EZ.
If you work another job besides your self-employed venture, you also might have a W-2. In a partnership or LLC situation, you’ll have a 1065.
Documentation You Need to Keep
By collecting documentation all year long, you take the pressure off yourself come tax time. Here are the various documents you need to support your tax forms:
- Revenue receipts
- Business expense receipts (including receipts for any home office expenses or travel mileage you plan to claim)
- Vendor Tax Identification Numbers (solicited by sending out Form W-9)
- Receipts for money paid to contractors
- Your tax register
- Your bank statements