When you start a business, you need to do your taxes a little differently. The first thing you should do is seek professional tax help in Des Moines, IA, since your responsibilities go way beyond the typical annual return when you become self-employed. Before you make your appointment, know that you are on a possibly overwhelming yet manageable journey. Here are the common questions we receive about taxes and self-employment.
I only run my business part-time. Am I still considered self-employed for tax purposes?
Even if you maintain a day job while running a side business, you must complete the same procedures as someone who is self-employed full-time. If you run a business as a sole proprietor or independent contractor, as a member of a partnership or even as a small venture as you work somewhere else, the IRS will consider you self-employed, no matter how many hours you devote to the effort.
What are my obligations?
If your earnings exceeded $400, you must file an annual return. In addition, you pay a quarterly tax and file a short return with that. The quarterly taxes go towards the total amount of taxes you owe at the end of the year. If you experience a net loss, you may receive a refund, but this is unlikely for the self-employed.
Another tax is the self-employment tax, which covers Social Security and Medicare. With wage earners, these expenses are taken out automatically, but for self-employed individuals, this extra tax covers that deduction.
What tax forms do I file?
There is a Form 1040 for self-employed individuals, and with it you will include a Schedule C. That document lists your income and expenses to determine your taxable income for the year. If your expenses were $5,000 or less, you may be able to file the Schedule C-EZ which is less involved than the typical Schedule C.
Like the Form 1040, the Schedule C comes with instructions, but it is often a time-consuming endeavor. That is why most self-employed individuals hire tax help.
How do I make quarterly payments?
Form 1040-ES helps you determine the amount for quarterly payments. You need the prior year’s tax return to complete it. If this is the first year you are self-employed, your quarterly payments are based on estimated income.
You make payments each quarter, so they are generally due in April for first quarter, June for the second quarter, September for the third and January of the next year for the fourth quarter. Quarters end on March 31, May 31, August 31 and December 31, and you will need to start calculating your estimated payment soon after their conclusion.
I work from home. May I receive additional deductions?
There are home office deductions available. Using a formula that compares the square footage of your office space to the total space in your home, you can deduct expenses like Internet, telephone, electricity and even repairs. Even if you rent your home, these deductions are available to you. Talk to a tax professional to learn more.
Accounting & Tax Professionals, PLC offers tax help in Des Moines, IA to self-employed individuals. Call us today to schedule a consultation.