When you’re self-employed, you face a very different tax situation than employees do. Here are the main differences:
Self-employment taxes may sting at first, but deductions can ease the pain. Some of the extra deductions you may be able to take can include:
As a self-employed person, you can deduct many of these business expenses even if you take the standard deduction and don’t itemize.
When you’re a W-2 employee, your employer withholds taxes from each paycheck you receive so that you pay your taxes as you go.
When you’re a 1099 contractor, there’s no employer to do this for you. Instead, you have to set aside your federal and state tax contributions and submit them every quarter as estimated taxes.
The estimated tax filing deadlines for the IRS are usually:
Your state’s deadlines may be different from IRS’s, so contact the state department of revenue if you’re unclear on when to pay.
You have two options for figuring out your quarterly taxes:
If you opt for the second method, here’s how to calculate your payments:
Track your income in a spreadsheet
so that you know how much you’re earning each quarter
Calculate your deductions,
and subtract them from your taxable income
Calculate your income and self-employment tax rates
Submit your quarterly payments to the IRS and your state treasury
If you’re not sure how much you owe or struggle to figure out your obligations, consider hiring professional help. An accountant or tax advisor can help you make sense of business taxes and advise you on the best way to structure your self-employed future as well.