What do I need to know about being self-employed?
You must report all income to the IRS.
You may receive a 1099-K or 1099-MISC reporting your income, but many self-employed people don't - it all depends on how you make your money. Regardless, you're responsible for recording your income and expenses to accurately report them on your return.
You can offset some/all of your income with deductions such as:
- home office deduction
- vehicle expenses
- rent or lease expenses
- commissions and fees
- office expenses
- repairs and maintenance
- other expenses
Generally, when you work for someone else as an employee, they'll pay half of your Social Security and Medicare payments and will withhold the other half from your paycheck.
However, when you're self-employed, you are responsible to pay the total amount of Social Security and Medicare payments. This can take a lot out of your income. You'll want to plan ahead to make sure you have enough money to pay these taxes.
The IRS system for paying taxes is "pay as you go." This means that you're required to pay income taxes at least quarterly or the IRS may charge interest. When you work for someone else, they meet this requirement by withholding taxes from your paycheck. When you're self-employed, you have to meet this requirement yourself by making quarterly estimated tax payments.