The article below is up to date based on the latest tax laws. It is accurate for your 2017 taxes, which you will file by the April 2018 deadline. Learn more about tax reform here.
You’ve got questions, and we’ve got answers.
Although there are many different ways to be self-employed, plenty of self-employed individuals have similar questions when it comes to their taxes. To help get you the answers you need, we’ve rounded up some of our most-asked self-employed tax questions below. If you’re recently self-employed, take a look and familiarize yourself with what you need to know come tax time.
- What is the special tax I need to pay if I’m self-employed? If you were employed by someone else, social security and Medicare taxes would be withheld from your wages. Since you are self-employed, when you file your annual tax return, you’ll include Schedule SE and pay self-employment tax rate at the rate of 15.3%, consisting of 12.4% for social security and 2.9% for Medicare.
- Do I pay self-employment tax on all my income? Though all of your profits from the business are subject to the Medicare portion of the self-employment tax, only the first $127,200 of your earned income is subject to the Social Security portion. So once the combination of your income as an employee and your earned income from the business reach that maximum, you’ll pay only the Medicare tax portion on the balance. You’ll make those computations on Schedule SE, and include any self-employment taxes due in the total tax shown on your tax return.
- Should I incorporate my business? Many small businesses are unincorporated, and if the business loses money, those losses can be used to offset other income. If you need the limited liability benefits of a more formal structure you can organize your business as a limited liability company (LLC), partnership or S corporation. Later on, when your business is highly successful, you may want to convert to a C-Corporation to take advantage of the corporate tax rates and employee benefit plans that are available through corporations.
- What expenses can I deduct? All of your business expenses are deductible: office supplies, cost of goods sold, advertising and promotion, dues and subscriptions, licenses and permits, equipment, auto expenses, insurance costs, utilities, and telephone, etc. Business travel is also deductible, along with 50% of business meals.
- Can I claim expenses for my home office? If you regularly and exclusively use part of your home to perform administrative or managerial activities for your business, you can claim a home office deduction for utilities, rent or mortgage interest, depreciation, phone use, cleaning and the like. You can take this deduction even if you provide products or services at other locations.
However, don’t worry about remembering all of this come tax time. TurboTax Self-Employed will ask you simple questions about you and give you the tax deductions you’re eligible for. If you have questions while doing your taxes you can connect to the TurboTax Live expansive network of credentialed CPAs and EAs live via one-way video to get your tax questions answered.