An image of a solopreneur calculating and filing self-employment taxes.

How to file self-employment taxes: A 7-step guide

Filing self-employment taxes can be a daunting task for many individuals. Whether you’re a freelancer, independent contractor, or sole proprietor, understanding the ins and outs of the tax filing process is key to avoiding penalties.

Sole proprietorship taxes are a bit different from a traditional job where you get a W-2. When working for a company, your employer withholds Social Security and Medicare taxes. Since self-employed individuals do not have any employer to withhold taxes, they must pay self-employed income tax. 

Let’s look at how to file your self-employment taxes efficiently and accurately: 

  1. Find out if you need to pay self-employment taxes
  2. Add up your self-employment income
  3. Maximize your self-employment deductions
  4. Calculate your self-employment tax
  5. Determine whether you need to pay estimated taxes
  6. Fill out your tax forms
  7. Pay your other self-employed taxes

1. Find out if you need to pay self-employment taxes

If you’ve been an employee, you know your employer withholds taxes from your pay before you receive a paycheck. This includes Social Security and Medicare taxes—collectively known as FICA taxes. Employees pay half the Social Security and Medicare tax rates of 7.65%, while employers pay the other half. 

When you’re self-employed, you pay the entire FICA tax rate of 15.3%. Self-employment taxes are mandatory for individuals who earn income through self-employment activities. If your net earnings from self-employment are over $400, you’ll likely need to pay self-employment taxes.

An illustration of determining if you need to file self-employment taxes.

2. Add up your self-employment income

To begin this process, gather all sources of self-employment income, which may include revenue from freelance work, consulting projects, or other contractor activities. For the most part, you’ll receive 1099 forms for income you’ll need to pay self-employment tax on. 

An illustration of the most common small business 1099 forms.

The most common 1099 form you’ll receive as a freelancer or independent contractor is the 1099-NEC. Businesses send out 1099-NEC forms to contractors they pay more than $600.

Once you have all your income sources, you can calculate your gross self-employment income. Add up the total revenue from each source and Form 1099, including any payments or compensation for your services.

3. Maximize your self-employment deductions

After determining your gross income, you need to account for deductible business expenses. With self-employment taxes, you’ll want to take advantage of all available deductions to maximize your savings. 

Self-employment deductions are normal and regular business expenses that can lower your tax liability.

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An illustration of the key tax deductions available for self-employed individuals.

Here are some key self-employment deductions to consider:

  • Home office: If you use a portion of your home exclusively for your business, you may be eligible for a home office deduction. This deduction allows you to deduct a portion of your home-related expenses, such as rent, utilities, and insurance.
  • Insurance deductions: The premiums you pay for coverage like property and liability insurance tied to your business are deductible. 
  • Travel expenses: Travel that’s primarily for business purposes like transportation and lodging can be tax deductions. 
  • Marketing costs: Expenses for promoting your business, such as advertising and website development, are deductible expenses. 
  • Legal fees: Attorney fees or business-related legal expenses for registering as a self-employed business owner

By taking advantage of these deductions, self-employed individuals can reduce their taxable income and lower their overall self-employment taxes.

4. Calculate your self-employment tax

Self-employment taxes consist of Social Security and Medicare taxes and can be different for high-wage earners. You’ll pay a ‌Social Security tax rate of 12.4% on income up to $168,600 in 2024. 

You’ll also pay a 2.9% Medicare tax—and if you make over $200,000 as an individual or $250,000 for married couples filing jointly, you’ll pay an additional 0.9%. For most self-employed individuals, the self-employment tax rate is 15.3%. 

An illustration of the self-employment tax rate, which includes Social Security and Medicare taxes.

You only owe taxes on your self-employment earnings, which is business income minus business expenses. To calculate your self-employment tax, you need your net earnings and taxable income—you can use a self-employment tax calculator to help. 

5. Determine whether you need to pay estimated taxes

Most self-employed individuals need to pay quarterly taxes, also known as estimated quarterly taxes. The easiest way to tell if you need to pay estimated taxes is with the $1,000 test—if you expect to owe more than $1,000, you’ll probably have to pay quarterly taxes. Earning more than $5,000 in self-employment earnings during the year will typically put you in this category.

An illustration of how to determine whether you need to pay estimated self-employment taxes.

If you have to pay self-employment taxes, you’ll have four quarterly payments to make. Quarterly estimated tax due dates are April 15, June 15, Sept 15, and Jan 15 of the following year. 

When filing and paying quarterly estimated self-employment taxes, you’ll use Form 1040-ES. This tax form will help you calculate how much tax you owe and need to pay to the IRS. 

When making quarterly tax payments, there’s a good chance you’ll overpay or underpay. If you overpay, you’ll receive a tax refund when you file your tax return for the year. And if you underpay, you’ll need to pay the difference.

6. Fill out your tax forms

When filling out an annual tax return, self-employed workers need to complete several tax forms and schedules to accurately report their income, calculate self-employment taxes, and claim deductions. 

Form 1040 is ‌the main individual income tax return form. Self-employed individuals must attach Schedule C to their 1040 form, which reports income and expenses from their self-employment. Schedule SE is another ‌important form for self-employed individuals. It calculates the self-employment tax by using ‌net income from Schedule C. 

Although self-employed individuals appear to have a higher tax burden than employees, they also enjoy certain tax benefits, such as deducting half their self-employment tax from income taxes.

7. Pay your other self-employed taxes

Along with regular income and self-employment tax, you may also be responsible for collecting sales tax. Your business will need to collect and pay sales tax if it sells certain products.

If you collect sales taxes, you’ll need to send them to the appropriate state or local tax agency. Register for a sales tax permit, keep track of your sales, and collect the appropriate tax from customers. 

Note that several states also require you to pay quarterly estimated self-employment taxes. Many have the same threshold as the IRS when determining whether to pay estimated taxes, while others have much lower limits. 

Find peace of mind come tax time 

Understanding and properly filing self-employment taxes is key for individuals who are their own bosses. Accurately filing these taxes ensures compliance with the law and helps avoid penalties. 

Using self-employed tax software like QuickBooks Solopreneur throughout the year could help when tax season finally arrives. Such software can also help you accurately track your expenses and income and manage cash flow.

How to file self-employment taxes FAQ

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