Read this tip to make your life smarter, better, faster and wiser. LifeTips is the place to go when you need to know about Tax Deductions and other Taxes topics.
You are considered self-employed by the IRS if you: are an independent contractor, you are a sole proprietor carrying on a trade or business, or you are a member of a partnership.
Self-employed individuals are allowed a variety of tax deductions by the IRS. These expenses are known as operating costs and are a necessary part of your business enterprise. These expenses are reported on Schedule C, which is filed along with your 1040 tax return.
Operating costs you can deduct as a self-employed individual include: advertising, licenses and permits, business use of your vehicle, materials, office supplies, insurance premiums on business assets, utilities, business debt interest, equipment repairs and maintenance, travel, plus meal and entertainment expenses.
Also, you can be considered self-employed even though you have a full-time job working for someone else. Just be sure you maintain proper records proving your profit motive and valid deductions.
As a self-employed individual, the IRS states that you need to file a tax return when your gross income is at least the amount that meets the standard filing requirements. These standard filing requirements are based on your age and filing status (single, married, etc.). For instance, for the tax year 2006, a single under age 65 would have to make more than a gross income amount of $8,450. Check with your IRS tax tables for your individual figure.
Self employed individuals need to file Schedule SE (self employment tax) for any net earnings from self-employment over $600. Self-employment tax includes the payment of Medicare and social security. Instead of having your employer pay their portion of these taxes for you, as a self-employed person, you are responsible for the entire share.
For a complete list of allowable deductions for self-employed individuals, refer to IRS Publication 334 – Tax Guide for Small Business.
Tax Tip: Self employed taxpayers may deduct half of the amount they pay for self-employed tax. Use Form SE to calculate your self-employment tax.
|Sheri Ann Richerson|