What You Need To Know About Filing Your Own Taxes – Self-Employed
According to the Bureau of Labor Statistics, there were about 16.2 million self-employed workers in January 2023 — that’s 10.1% of the workforce. According to the Bureau of Labor Statistics, there were about 16.2 million self-employed workers in January 2023 — that’s 10.1% of the workforce.
And when tax season rolls around, many self-employed taxpayers like yourself think they need to hire tax professionals and shell out hefty income tax return preparation fees instead of filing their own taxes, which you may assume are too complex to tackle yourself.
Paying a tax professional is all well and good, but if you’re self-employed and looking to save, DIYing your taxes — or using paid tax software like TaxAct(r) — might be your best and cheapest filing option, especially if you’ve got minimal expenses. You’ll still need to track business expenses and calculate deductions, even if a professional files your taxes.
If your goal is to save money, try it yourself first. Here’s what you need to know if you plan to try it out.
Self-employed tax software
If you’re comfortable with online tax filing, many tax software companies offer specialized services for self-employed business owners. TaxAct’s software is easy to use, even if you’re not a tax expert. You can then follow the prompts in our tax preparation software. If you’ve got questions, TaxAct in particular has a feature called Xpert Assist that allows you to connect with a credentialed tax expert who can help answer tax questions you may have*.
Another good resource to check out is TaxAct’s self-employment tax calculator and the IRS self-employed online tax center.
How to treat the home office deduction
Many self-employed workers are home-based. You’re likely familiar with the home-office deduction if you are a self-employed worker. It’s important to follow IRS rules and make sure that you are calculating the deduction correctly. The IRS has outlined them in Publication 587. However, you should make sure that your office is your principal business location and is used exclusively for work. It can’t be used as a guestroom or for anything else. But it doesn’t necessarily have to be a separate room — a corner of your bedroom with a desk, computer, and files can qualify for the home office deduction as long as you use it exclusively for business.
Calculating the home office deduction
When it comes to calculating the home office deduction, you have two options:
The simplified home office deduction
, where you deduct $5 per square foot of your home office (up to $1,500 and 300 square feet).
Manual calculation
of all your actual expenses, which includes both direct and indirect costs. You must determine the percentage of indirect costs (such as mortgage interest, taxes and maintenance costs) that was solely used for your business. Only that portion is tax deductible — not the entire cost.
- Regardless of which method you choose, your deduction is limited to your net business income. The lowdown on self employment taxThere is no doubt that being self-employed can be more complicated than working for an employer. FICA funds Social Security and Medicare.
- When you work for a traditional employer, your employer covers half of the FICA tax for you, while you pay the other half. When you are self-employed, however, you will be responsible for the entire amount since you are both the employer AND the employee. You can deduct 50% of your self-employment tax. TaxAct can assist you in claiming this deduction when you submit your small business tax returns with us. The self-employment tax is calculated at 15.3% of self-employment income, and is separate from federal income tax. To cover that added cost, it’s worth planning out your cash flow for the entire year and understanding that you’re not just paying regular income tax — that you’re paying this additional amount of 15.3%.Get your quarterly estimated payments straight
You’ll generally need to pay quarterly estimated taxes if your tax liability for the year is $1,000 or more. You’ll need to pay estimated taxes four times a yearly, since the IRS expects you to pay tax as you earn it. This means you will have to make payments in April, June and September. Even if you file an extension, you’ll still need to pay that same day. TaxAct can quickly calculate how much you owe and help you set up quarterly estimates payments so that you are covered throughout the entire year. To get an idea of what you may owe this year, check out our self-employment tax calculator.
