IRS Tips for the Self-Employed

People incur tax debts for a variety of reasons.  Sometimes wage earners get into trouble by claiming too many exemptions on Form W-4, which results in too little tax being withheld for the federal government.  Sometimes people don’t understand the tax consequences of certain transactions; they see their job as their only source of income and fail to consider other taxable events such as debt forgiveness or retirement account distributions.  But a huge percentage (probably the vast majority) of people with IRS problems are the self-employed.  The self-employed typically get into trouble when they either fail to make estimated tax payments or when they claim invalid/excessive expenses which results in “underreported income.”

Today the IRS offers tips for self-employed taxpayers that will keep them out of hot water:

  1. You may be self-employed even if you don’t consider yourself “self-employed” so be careful!
  2. File a Schedule C to claim your business/self-employment expenses and reduce your taxable income
  3. Pay self-employment tax (Social Security and Medicare) as well as income tax
  4. Make estimated tax payments throughout the year so you don’t have a large bill that you can’t pay come April 15th.  See form 1040ES.
  5. Check to be sure you can deduct the entire business expense or if it must be capitalized
  6. Business expenses are allowable only if they are both ordinary and necessary


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