The IRS is looking to get the word out to the self-employed that tax season need not be a mystery.
The Small Business and Self-Employed Tax Center (www.irs.gov/smallbiz) offers resources and online tools, such as small business forms and publications, an online Employer Identification Number application, employment tax information for federal income tax, Social Security and Medicare taxes, tax news, small business educational events, and videos.
There are five things the IRS wants you to know about self-employment:
1). Self-employment can include work in addition to your regular full-time business activities. That means part-time work you do at home or in addition to your regular job.
2). If you are self-employed you generally have to pay self-employment tax. Self-employment tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. You can deduct half of your self-employment tax in figuring your adjusted gross income.
3). If you are self-employed you generally have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you don’t make quarterly payments you may be penalized for underpayment at the end of the tax year.
4). You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
5). To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be necessary.