Did you know that about 30% of Americans are self-employed? If you just started working for yourself, you joined 44 million Americans who are also self-employed.
For those who are new to self-employment, filing their taxes seems like a daunting task. While the process is different, it’s not an impossible process once you learn the basics.
Read on to learn how to file taxes when working for yourself.
Determine Your Tax Responsibility
Before you determine your tax responsibility, you need to know if you’re considered self-employed. The IRS considers you self-employed if you meet the following criteria:
- You are classified as an independent contractor
- You own a business
- Your trade is your business
- You earn money from a side-hustle
- You receive a 1099-MISC or 1099-K
- You run different businesses
Even if you earn money through a side-hustle, you only need to file self-employed taxes when you meet certain criteria. The IRS only requires you to report your self-employed income if it’s over $400.
If you have just started your side-hustle and haven’t started earning income, you do not need to file any special tax form.
Find a Tax Professional or Do It Yourself
Although the IRS doesn’t have special rules for how you should file your self-employed taxes, the decision is entirely up to you. While there is plenty of do-it-yourself tax software, the stakes are higher when you report self-employed income.
If you think you’re great with numbers and understand the basics of tax filing, chances are you will feel pretty comfortable filing your taxes.
However, many self-employed individuals have plenty of deductions, which is why they choose to work with a tax professional. Because they’re experts in the field, tax professionals will ensure you take advantage of all the deductions you’re eligible for.
Many people choose to file their own taxes because the cost of a tax professional can set them back hundreds of dollars.
Gather All of Your Financial Documents
Before you file your self-employed taxes, you need to gather all of your financial documents.
For starters, you need to have your tax ID number in hand before you start filing your taxes. If you work a side hustle or as an independent contractor, your Social Security number will serve as your tax ID number. However, if you have created a business, you will need an employer identification number (EIN).
Once you have your tax ID number, you can gather your sources of income. If you work as an independent contractor, then you should receive a 1099-MISC or 1099-K from the business employing you as an independent contractor.
However, if you get paid in cash, you will have to fill out a 1099-Mic yourself. Check out this site for more info on obtaining a 1099-MISC.
The last thing you need are receipts for all of your work expenses, such as equipment, supplies, utilities, miles, etc.
How to Do Taxes When Working for Yourself? Here’s the Answer!
Now that you have more information on how to do your taxes when working for yourself, it’s time you prepare for tax season.
Before you start the process of filing your self-employed taxes, ensure you determine your tax responsibility, decide if you need to hire a tax professional, and gather all of the necessary documents.
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