Self-Employment Taxes and The Common Traps to Avoid So You Do Not Owe Back Taxes
People often dream of quitting their jobs and going into business for themselves so that they can pursue a passion and work without a boss. Self-employment can be a rewarding career decision, but it can lead to higher taxes and tax returns that are more complex than what you initially bargained for.
If you are self-employed, it is important to understand how taxes work so you can avoid making a mistake and owing more than your fair share of taxes. Note: If you owe back taxes and need tax relief, call us for a free consultation. We solely focus on resolving individual, complicated self-employed, and small business back tax problems. Contact Tax Resolution Attorney Gwin, PLLC at (407) 704-7152. www.taxresolutionatty.com
Definition of Self-Employment
The IRS considers you to be self-employed if you work as a contractor, freelancer, small business owner or are otherwise in business for yourself. If you earn income directly from clients and you do not have an employer that withholds money from your pay for tax purposes, you are self-employed.
Tax Withholding and Estimated Taxes
If you work as an employee, your employer automatically takes a certain amount of money out of your pay each month to cover your tax obligations, which is called tax withholding. Self-employed workers do not have an employer to withhold income for tax
purposes, so they are responsible for paying their own taxes to the IRS through estimated tax payments. Estimated tax payments must be sent to the IRS on a quarterly basis if you expect to owe at least $1,000 in income tax at the end of the year. The usual due dates for estimated tax payments are April 15, June 15, September 15 and January 15. Failure to plan properly and pay enough
estimated taxes during the year can result in a tax penalty and a large surprise tax bill. If you pay at least 90 percent of the tax you owe or 100 percent of the total tax you owed from the previous year, the IRS typically will not assess a tax penalty.
Self-employed workers must pay the self-employment tax (SE tax) which goes toward Social Security and Medicare in addition to normal income tax. Employees split the cost of paying into Social Security and Medicare with their employers, but self-employed workers must pay the full amount themselves. We always recommend hiring a professional to handle your taxes and stay
compliant, but we especially recommend hiring a qualified tax relief firm if you find yourself behind on any taxes or you are hit with a large tax bill you cannot afford to pay.
Do I Have to Report Side-Income If I Have A Normal Job as Well?
Individuals with self-employment income must file an income tax return if they have net income from self-employment of $400 or more. In addition, you must report any self-employment income you make during the year on your taxes even if you hold down a normal job.
For example, if you work as an employee year-round but you take on small contract jobs on the side to make extra cash, that money must be reported as self-employment income when you file your tax return even if you do not make enough extra cash to warrant paying estimated taxes. It is a common misconception that you do not have to file or report income if it’s “cash” or if it’s from a side hustle. Not reporting it could lead to more trouble than it is worth, and the IRS will add penalties and interest on top of the taxes owed.
OWE BACK TAXES?
If you’re going to owe money to the IRS after filing your return, it’s important to note that only experienced firms like ours are able to handle tax debt cases since negotiating with the IRS requires specialized skills that often fall outside of the scope of most conventional accounting, tax, and tax law firms.
Our firm solely focuses on tax problem resolution. We can represent you before the IRS and state taxing authorities. We serve clients virtually so do not hesitate to reach out. If you want an experienced tax resolution professional who knows how to navigate the IRS maze, reach out to our firm and we will schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem. www.taxresolutionatty.com (407) 704-7152