Jeff Haywood, CPA

« Important IRS Tax Tips: Health Insurance Tax Breaks for the Self Employed

Was This Year a Bad Year? We may be able to get you a refund of your taxes paid in prior years. »

6 IRS Tax Tips for Self-Employed Individuals

March 21st, 2011 | Author: admin

Employee Business Expenses:

Mr. CPA, what can I deduct against my business revenue? Here are some tax tips from the IRS on that subject:

Tax Tips for Self-employed Individuals

IRS Tax Tip 2011-16, January 24, 2011

If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself self-employed and you would file IRS Schedule C, Profit or Loss From Business or Schedule C-EZ, Net Profit From Business with your Form 1040.

Here are six things the IRS wants you to know about self-employment:

Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
If you are self-employed you generally have to pay Self-employment Tax. Self-employment tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. You figure SE tax yourself using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.
If you are self-employed you generally have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you don’t make quarterly payments you may be penalized for underpayment at the end of the tax year.
You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary. In addition, you must be able to substantiate your expense..
For more information see IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at http://www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

Links:

Publication 334, Tax Guide for Small Business ( PDF)
Publication 535, Business Expenses ( PDF)
Publication 505, Tax Withholding and Estimated Tax ( PDF)

The self-employment tax amounts to the equivalent of both side of Medicare and Social Security taxes. When you get a W-2 it reflects the amount of these taxes withheld from your paycheck. In addition, your employer pays for these taxes as well. In the past the employer matched the amount withheld from your income but for 2011 at least they pay more than what is withheld. As a self-employed person your self-employment tax is the equivalent of both portions of these taxes, the employee’s and the employer’s portions.

While you may have to make estimated tax payments if you have self-employment income you may have other options. It is the underpayment of tax you may be penalized on. To avoid the penalty you can make estimated payments but if you have W-2 income you can also ask your employer to withhold more federal income tax to cover your estimated tax for self-employment income. This accomplishes the same result and can spare you from remembering to file your quarterly estimated payments.

I specialize in helping self-employed individuals and other small business owners. An alarming number of new businesses fail in the first couple of years. Taxes can be a significant part of that problem. If you have your own business and especially if you are in the process of starting a new business, contact me to discuss your plans and I will help you avoid some unexpected problems related to income taxes.

To have an experienced CPA help you prepare your tax returns and help you reach your goals, including getting your new business off to a successful start, contact me at the phone number below.

Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com

I prepare the following types of tax returns:

Personal
Business
Estates
Trusts
Federal and State Returns

Also, I am available for tax planning and discussions about business, retirement planning and life goals.

For more US income tax content see the following links:

10 Things to Know About the Child and Dependent Care Credit
10 Important Facts About Capital Gains and Loses
IRS: Beware of Tax Scams
IRS Top Ten: Mortgage Debt Forgiveness
IRS Top Ten: IRA Contributions
US Income Tax Help for Expatriates
4 Credits That Can Pay You at Tax Time
What Business Deductions Can I Take as an Employee? IRS Tax Tips.
Was This Year a Bad Year? We may be able to get you a refund of your taxes paid in prior years.
6 IRS Tax Tips for Self-Employed Individuals
Important IRS Tax Tips: Health Insurance Tax Breaks for the Self-Employed
6 Things the IRS Wants You to Know About the Home Office Deduction
Is Your Child’s Investment Income Supposed to be Taxed at Your Tax Rate?
IRS Notice – Don’t Panic – Call Me
Who Can I Claim As A Dependent?
Which Filing Status Should I Use?
Do I Have To File A Tax Return For 2010?
6 Things You Should Know About Business Expenses – What You Can Deduct
Top Four Reasons Clients Hire Me To Prepare Their Tax Returns – Individual and Business
Instant Convenient Access To Your Tax Returns and Documents
How To Avoid the Social Security Penalty and Does Warren Buffett Get Penalized??
5000 Birds Fall From the Sky – Casualty Losses
Are You Required to Report Foreign Banks and Financial Accounts?
2010: “A Last Minute Checklist”
Energy Credits
ROTH IRAs
Traditional IRAs
Year-End Tax Planning Tips
Education Credits-American Opportunity Credit
ROTH IRA Conversion

As always keep in mind that the content provide on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.

This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.