By: Law Office of Ray Haselman

How Do I Report Self-Employment Income to the IRS?

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Generally speaking, you are considered self-employed if any of the below characteristics are confirmed.

You are in a business for yourself, either part-time or full-time, or a “gig” worker.

You carry on a trade or business as a sole proprietor or independent contractor.

In most cases, you do not need a business set up to be considered self-employed, whether an LLC, Sole Proprietorship, S Corp, or otherwise.

I Received a 1099 Form Instead of a W-2. Does This Mean I’m Self-Employed?

The payer or employer you received income from treats you as an independent contractor rather than an employee. An independent contractor is considered self-employed and must file taxes appropriately.

If the income received is more significant than $400 in any given year, you must report this income and pay self-employment taxes. In some cases, “gig workers” will work for several clients throughout the year, and some smaller tasks may not result in more than $400 from that client. In this case, it is generally acceptable to omit this income. Speaking with an experienced attorney can help you determine whether or not omitting any income is legal and in your best interest.

What is the Difference Between an Employee and an Independent Contractor?

If you are classified as an employee, you and your employer must pay Social Security Tax and Medicare Tax on your wages. This tax amount is calculated typically through the in-house payroll so that you aren’t responsible for correctly accounting for the taxes necessary each year.

If you are self-employed or an independent contractor, you must pay all of the required annual Social Security and Medicare Tax. You will also be required to accurately calculate it to avoid paying any fines or fees that may be necessary if the amount you calculated doesn’t suffice the IRS.

Do I Need to Make Estimated Quarterly Payments?

If you estimate that the taxes you owe for the year are more than $1,000, you are typically required to make estimated quarterly payments.

This helps to alleviate having to make a large payment annually in taxes on your income. If you have another source of income, you may be able to avoid making estimated quarterly payments due to the other job or jobs helping to alleviate the amount of taxes that you are required to pay.

What Records Should I Keep?

It is crucial to keep accurate records of all income received to help navigate the process of reporting annual income and calculating the taxes you owe.

Keeping a record of all income you receive, cash or otherwise, is essential. You can create a spreadsheet to document income or make a simple note of payments in a notebook.

Document what you were paid and when. The date the check or deposit was received and how much was received can be helpful.

Who paid you, and a summary of the work that initiated the payment is also beneficial for you. This can alleviate future confusion about what income was received and why, and what the tax ramifications are.

What Other Records Should I Keep?

It is also beneficial to keep a record of any expenses you incurred that are associated with the work you did throughout the year. Some of the most common expenses are listed below.

Car-related expenses such as gas or maintenance to your vehicle should be kept if they are associated with work performed. Perhaps you have to travel to meet clients or deliver goods. The mileage may be a deduction that can help offset the amount of taxes owed at the end of the year.

Office supplies such as a new computer, a new printer, paper for the printer, and other miscellaneous office necessities should be documented.

Expenses such as your cell phone or WiFi bill can also be used as deductions. Keeping a record of your monthly bills can be essential when it comes time to calculate your taxes owed.

Did you attend classes or engage in special training associated with your business throughout the year? The cost of these classes may be included in items you can deduct as business expenses.

Do you have a home office? In most cases, you can calculate a deduction for a home office concerning your mortgage or rent costs by calculating the square footage of your home office in relation to the square footage of your home and computing an annual deduction.

Each industry will have specific deductions that are acceptable. Consulting an experienced tax attorney can help you to prepare your annual expenses and cover all of your bases so that you can accurately record all necessary items during the year.

How Can a Tax Attorney Help Me?

Are you like most people who need help figuring out where to start regarding tax laws? An experienced tax attorney is trained in tax laws and can help you understand how they apply to you. They can help to protect your rights and challenge rulings that the IRS may make based on your self-employed income.

Tax attorneys may also help negotiate with the IRS regarding wage garnishment, property liens, or account levies. This can be invaluable to your livelihood should you be experiencing any of them.

Accurately reporting your income can be overwhelming, but an experienced tax attorney can ensure that you have covered all necessary aspects of your income and accurately paid your taxes for the year, shielding you from issues with the IRS.

Contact our office today at (786) 522-0410 to learn more about how we can help you.