Simplified Taxes for Self-Employed Business Owners

Business Taxes for Self-Employed Business Owners

If you are a freelance writer or a contract employee, you are self-employed. One big benefit to being in business is taking deductions for business expenses to reduce your taxes, but you will have to file a business tax return to get these deductions.

Simplifying the filing process can mean: 

  • Taking a DIY approach, finding the appropriate forms online, and completing them yourself. You can find many business tax forms on the IRS website in fillable PDF form. Instructions are included for all forms. 
  • Finding a small business tax preparation software program, or
  • Making an agreement with a tax preparer to let you do some of the preliminary work yourself. 

These articles will help you figure out how to file your business tax return, keeping it simple. 

How a Self-employed Business Owner Pays Income Taxes

If you are self-employed and you have not set up any specific business entity (like a limited liability company or corporation), you are a sole proprietor. Sole proprietors pay income taxes on their personal tax returns, using Schedule C to provide information on business income and expenses.

This article includes information on forms to file, what deductions you can take, and how to get help with preparing your business taxes.

The Basic Business Tax Forms You Will Need for Business Taxes

 Start out by gathering the business tax forms you need for preparing your small business taxes. 

  • Schedule C or Schedule C-EZ. This is the form on which you report your business income and expenses. Schedule C-EZ is for simpler businesses (see the article below). 
  • Schedule SE. You must pay self-employment tax on your business income. This form is more complicated than Schedule C but you might be able to file the simple version. 
  • Estimated tax form 1040 ES. You must calculate your estimated tax liability for the year and pay the first quarter's estimated tax by April 15. 

More details below: 

How to Complete a Schedule C for Business Taxes

Schedule C is one of the most common tax schedules which are part of a personal tax return (for 1040 or other) package. This schedule is part of the personal tax return for individuals and married couples (Form 1040 or other).  

You will need specific information on income and deductions to complete this form. This article takes you through the process of filing Schedule C. 

Even More Simple - Filing Schedule C-EZ

If you have a very small business, you may be able to simplify your business taxes even more by filing Schedule C-EZ instead of Schedule C.  To qualify to use this form,  you must meet some requirements: 

  • Your business expenses for the year must be $5,000 or less
  • You cannot have inventory or cost of goods sold,
  • You can't deduct expenses for a home based business
  • You must use the cash method of accounting 
  • You can't have a net loss for the year. 

There are some other less-common qualifications, so please check out the article to see if you can qualify for filing Schedule C-EZ and how to prepare this return. 

Calculating and Completing Schedule SE for Self-employment taxes

Many business owners forget about self-employment taxes, because they are not withheld from the payments you receive from your business as an owner. But when you file your business tax return with your personal return, self-employment taxes will be calculated. 

Self-employment taxes are the taxes a business owner pays for Social Security and Medicare.  The amount of tax owed is roughly 12.4%, similar to the amounts paid by employers and employees for FICA taxes. 

Schedule SE is used to calculate the amount of self-employment taxes for your personal tax return. 

How to Include Business Tax Forms on Your Personal Tax Return

When you have completed your business tax forms, you're ready to include the information from these forms on your personal tax return. 

The new Schedule 1, part of the 1040 form, is the place where most of this information goes.

Schedule C/C-EZ information is entered on Schedule 1 on line 27. 

Schedule K-1 is used to report a business owner's share of business income from a: 

  • Partnership
  • Multiple-owner LLC, or 
  • S Corporation.

This information goes in various places on the Schedule 1, depending on the type of business income. 

How to Deduct Expenses for Your Home Office

The IRS looks pretty closely at home office expenses, but you can deduct them if you follow the directions, and if you have set aside a space that you use "regularly and exclusively" for business purposes.

If you have a very small home office (under 300 square feet), you may be able to use the IRS simplified calculation method. 

Then you can determine the percentage of business use and deduct certain home expenses (like utilities and mortgage interest). This article takes you through the steps in determining your home office expense deduction.

How to Deduct Business Expenses to Minimize Your Tax Bill

Check out this list of some of the most common business tax deductions, so you don't miss anything: 

  • Accounting and tax preparation fees and other legal and professional fees 
  • Advertising and marketing expenses
  • Computer hardware and software
  • Insurance expenses
  • Car and driving expenses
  • Travel expenses
  • Interest expenses on business loans
  • Office supplies and expenses

Tax Software for Business Taxes

If your business taxes are simple, you may have considered doing them yourself, with the help of tax software.  This article lists the features and costs of the three major tax software programs: TaxAct, Turbo Tax, and H&R Block At Home (formerly TaxCut).

How to Find Tax Advice for Your Self-Employed Business Taxes

The national tax preparation services work only on personal tax returns.  They don't really have much expertise in business taxes, even the simple Schedule C.  To help you get the best tax advice, you will need to hire a tax adviser/tax preparer.  Here are some options for finding this person.