If you are self-employed, the IRS will have special obligations that you will be required to meet. These obligations apply to you if you carry on a trade or business as a sole proprietor or independent contractor. You are also self-employed if you are a member of a partnership that carries on trade or business, or are otherwise in business for yourself which includes part-time businesses. Once your net earning surpass four hundred dollars, you will need to file an annual return, pay Social Security and Medicare taxes quarterly, and most likely file an information return. Keep in mind that if you are operating a Limited Liability Company this will require a different process. Talk to your tax attorney about your different options when setting up a business.
To file your quarterly returns you will have to use an Estimated Tax to pay your Social Security, Medicare taxes, and Income Tax. These are the taxes that would normally be taken out of your paycheck if you were an employee. You will need Form 1040-ES, Estimated Tax for Individuals to estimate these taxes. You will also need last year’s annual tax return to help you fill out the 1040ES. If this is your first year, you will have to fill out the form using projections of future income. To file your annual return you will need Schedule C or Schedule C EZ to report your income or loss from your business. Use Schedule C-EZ if your expenses are less than five thousand dollars. You will also need to file Schedule SE (Form 1040) Self Employment Tax. Use Schedule C to calculate the amount of Social Security and Medicare taxes you should have paid throughout the year. There are instructions on the Schedule SE form that might be helpful. You can also talk to your tax attorney or accountant.
If you made or received payments as a small business owner or as a self-employed individual in excess of six hundred dollars, you will most likely be required to file an Information Return. These payments can be for services by independent contractors, prizes or awards, rent, royalties, medical expenses, attorney fees, retirement plans, or payments to merchants. By all means, be sure to ask your tax attorney about information returns, just don’t forget to fill out the form. To learn more about our services call: 913-735-4829.
If you fall behind, the consequences can be serious. Call your Kansas City Tax Attorney, Jeffrey R. Siegel, if you need help.
