Self-employed workers have a lot on their plate. Taxes, paperwork, and other administrative tasks can be complicated to navigate. If you’re looking for a tax guide for self-employed workers, this blog post is your one-stop shop. We’ll cover everything from what the IRS considers self-employment income to tips for filing taxes as an independent contractor. It’s time to simplify your life with our guide.

Are You a Self-Employed Individual?

Many businesses hire workers on a contract basis to perform specific types of labor. Instead of getting a W-2 with taxes withheld, these individuals receive a 1099-MISC or 1099-NEC for their work for the company. In some cases, independent contractors are hired to perform specific tasks such as grocery shopping and delivery, transportation of passengers, and picking up food orders on behalf of other individuals or businesses. Additionally, those who conduct freelance labor are typically required to work under the terms of a written agreement. Consequently, you may be eligible to deduct expenses such as home office expenses, gas expenses, and mileage charges from your tax return.

If you work for yourself and are not an employee, you will pay taxes in a slightly different manner from that of an employee. In your capacity as a self-employed individual, you are responsible for paying federal income taxes and Social Security and Medicare taxes on your own time, either through quarterly anticipated tax payments or when you file your annual tax return. If your estimated tax payments are excessive, you will be entitled to a refund; if they are too small, you will be liable to pay tax on the difference.

Taxes on income must be paid at the time of earning it. If you do not pay enough tax during the year, you may be assessed fines. If your total self-employment income is at least $400, you must file a tax return with the IRS. Comparatively speaking, if you are an employee, you will have these payments routinely deducted from your income and partially paid for you by your employer.

You are essentially self if you carry on a trade or business or own and operate your own business, whether full-time or part-time, for-profit or profit-sharing. A self-employed individual can work as a sole proprietorship, an independent contractor, or a freelancer in their field of expertise. It does not matter whether you are paid in cash and do not receive a 1099-MISC or 1099-NEC; you are still deemed self-employed.

1. Sole Proprietor

As a sole proprietor, your business income and costs should be reported on your tax return Schedule C. Taxes on your self-employment earnings, such as Social Security and Medicare, will be your responsibility.

2. Partnerships and Corporations

If you have a business partner, you would most likely register as a partnership or corporation, depending on your circumstances. A partnership must submit an information return, but it is not required to pay federal income tax in most cases. Information returns are tax forms (the most common of which is Form W-2) that businesses and taxpayers must file with the Internal Revenue Service to record certain business transactions to the agency. Typically, Form K-1 is used to submit to the federal government an individual’s share of the partnership and S-corporation revenue that they received.

Unlike a sole proprietorship or a partnership, a C-corporation is considered an independent tax-paying business for federal tax reasons. That implies the company may be able to take advantage of particular tax benefits. It also means that the profit it makes is taxed at the corporate level, then taxed again on the recipient’s tax return if handed to shareholders as a dividend.

S-corporations are similar to partnerships in that their profits are usually reported on your tax return. However, they are identical to C-corporations in that the owner is generally paid a salary, and payroll taxes are withheld at the corporate level. At the end of the year, you may receive a Form W-2 detailing some or all of your earnings.

One of the benefits of being an S-corporation is that the taxpayer can set their remuneration, as long as the criteria are followed. However, because wages are subject to payroll taxes, there might be significant financial consequences if a person underpays himself when the business is profitable.

How to File Self Employment Taxes

Individuals who work for themselves are subject to the self-employment tax, which comprises Social Security and Medicare levies. It’s comparable to how most wage earners’ Social Security and Medicare taxes are deducted from their salary.

Schedule SE is used to calculate self-employment tax (SE tax) (Form 1040 or 1040-SR). Most wage earners’ Social Security and Medicare taxes are calculated by their employers. Also, when calculating your adjusted gross income, you can deduct the employer-equivalent share of your SE tax. Wage workers cannot remove taxes on Social Security and Medicare.

The tax rate on self-employment is 15.3 percent. The rate is divided into 12.4% for social security (old-age, survivors, and disability insurance) and 2.9 percent for Medicare (hospital insurance).

For 2020, any combination of the Social Security part of self-employment tax, Social Security tax, or railroad retirement (tier 1) tax will apply to the first $137,700 of your total salary, tips, and net earnings. For 2021, the sum has been increased to $142,800. (For prior-year SE tax rates, see the Schedule SE for that year.)

All of your current year’s combined salaries, tips, and net profits are liable to the 2.9 percent Medicare portion of the Self-Employment tax, Social Security tax, or railroad retirement (tier 1) tax.

Do not pay the 12.4 percent social security component of the SE tax on any of your net profits if your salaries and tips are subject to either social security tax or the Tier 1 part of railroad retirement tax, or both, and total at least $137,700. However, the 2.9 percent Medicare portion of the SE tax must be paid on all of your net earnings.

How to Pay Self-Employment Tax

You must have a Social Security number (SSN) or an individual taxpayer identification number (ITIN) to pay self-employment tax (ITIN).

If you don’t have a Social Security number, fill out Form SS-5, Application for a Social Security Card. This form is available at any Social Security office or over the phone at (800) 772-1213. The form can be downloaded from the website for the Social Security Number and Card.

If you are a non-resident or resident alien who does not have or is not qualified for an SSN, the IRS will give you an ITIN. Fill out Form W-7, Application for IRS Individual Taxpayer Identification Number PDF, to apply for an ITIN.

As a self-employed person, you may be required to file Estimated quarterly Taxes. You can pay your self-employment tax with these predicted tax payments. For more information on paying your self-employment tax with Estimated taxes, see the Estimated Taxes page and Publication 505, Tax Withholding and Estimated Tax.

Many people these days turn to the internet for all sorts of purposes from doing their regular shopping to socializing, streaming movies, and much more. Another thing that a lot of people use internet technology for these days is to access financial services such as banking. Having to spend ages queueing up at banks and ATMs has become a thing of the past for many, as people now enjoy the many great benefits of online banking.

In years gone by, looking after your spending, saving, and checking accounts could be a challenge. You had to go through reams of paperwork, spend a lot of time at the bank to make transactions, spend hours glued to the phone, and more. These days, all you have to do is to logon, and you can choose from a wide range of online accounts such as a Chime spending account. In this article, we will look at some of the many benefits of online banking.

Some of the Main Benefits

There are many benefits that come with online banking, and this is why more and more people have turned to this solution over recent years. Some of the major benefits that you can look forward to when you opt for online banking are:

Avoiding Queues and Inconvenience

One of the major benefits for many people these days is that they can avoid the lengthy queues and inconvenience of having to go to the bank. If you have to visit the branch for various transactions, you could find yourself wasting a lot of time simply hanging around or having to travel to and from the bank to get your finances sorted out. When you have online banking, all you need to do is log into your account and you can sort out any transactions with ease and speed.

Saving Time and Hassle

Another of the benefits of doing your banking online is that you can save yourself a huge amount of time and hassle. This is something that many people are looking for, as they already have enough on their plates with work and family commitments. Rather than wasting time on lengthy phone calls where you are passed from pillar to post, you can just go online at your convenience to conduct transactions. In addition, you save yourself the time involved in going to a branch in order to deal with your banking.

Staying in Control of Finances

When you have access to online banking facilities, you will find it much easier to stay in control of your finances. You can see what is going on with your account at a glance, and this means that you can stay on top of your spending, transactions, income, and more. You can do this from the safety and privacy of your own home at a time that suits you.

These are some of the many benefits that you can look forward to when you turn to online banking. 

1. You’re dropped by your homeowners insurance

2. You’re facing a “face-to-face” tax audit

3. You’re creating an estate plan