Disclaimer: This resource is for informational purposes only and should not be construed as financial or tax advice (or a substitute for obtaining such advice), or for the purpose of avoiding U.S. Federal, State, or Local tax payments and penalties
The tax season can be intimidating, especially if you are self-employed. While there are many rules and regulations to consider, filing your taxes as a self-employed individual doesn’t have to be overwhelming. To make the process smoother, here’s a checklist of things to keep in mind specifically for self-employment taxes.
- Know your business structure
- Gather necessary documents
- Choose your freelancer tax filing method
- Calculating your earnings as a self-employed worker
- Start preparing for next year’s self-employment taxes
Know your business structure
Understanding how self-employed workers are taxed can be a tricky business. Sole proprietorships and single-member LLCs have the simplest self-employment tax filings, as they are both taxed in the same manner as an individual’s taxes – with income taxes reported on Schedule C of their personal tax returns. S Corporations and partnerships require filing separate entities from their individual returns. If you have income as an independent worker or gig worker, but have not registered as a business, then you are likely a sole proprietorship.
Gather your tax documents & information
Make sure that you have all of the required documents to help file your self-employment taxes.
You'll want to look out for any 1099 forms, which are sent out by companies to independent contractors to report payments made throughout the year. You should receive a 1099-K, 1099-NEC, or 1099-MISC, which will tell you how much self-employment earnings to report on your tax return. Make sure to check these forms against your own records to make sure they are accurate.
You’ll also want to gather information about any business expenses you incurred throughout the year as a result of self-employment work. Business expenses are important because they qualify you for write-offs on your taxes, thus reducing your tax bill. Business expenses could include auto expenses, tools and supplies, or home office expenses. For each expense, you'll need to know how much it was and which expense category it belongs to. If you use Level's Financial Toolbox, getting a record of these expenses is quick and easy.
If your business involves lots of driving, you may want to be able to compare writing off your actual auto expenses versus taking the standard mileage deduction set forth by the IRS, and see which one saves you more on taxes. If you'd like to be able to compare the methods, you should know the number of miles you drove for business purposes during the year.
If you paid any quarterly estimated tax payments throughout the year, include them on your tax return.
If you received any W-2s as an employee rather than an independent contractor, those should also be included as part of your tax return.
Finally, gather any other tax documents relevant to your situation, such as forms for interest or investment income.
Remember, if anything is missing or incorrect, the IRS may come knocking! Make sure that you have all of the necessary documentation before filing so that everything runs smoothly and you can receive your tax refund without worries.
Choose your tax filing method
There are multiple options available to help you file your self-employment taxes. Depending on the complexity of your self-employment taxes, you might benefit most from using a software program that can walk you through step-by-step, or if you have more complex questions, an accountant or tax professional could answer them for you.
If you prefer a DIY approach, there are many online tools as well as paper forms that can be used to submit federal and state tax returns.
If your adjusted gross income is below $73,000, you may qualify for online tax preparation and self-employed tax filing at no cost. A popular option for free federal filing is FreeTax USA. Alternatively, local organizations and non-profits offer free or low-cost tax filing services and sometimes even financial advice.
Lastly, hiring a professional accountant or bookkeeper is an option if you're a business owner looking at more complex tax returns and need help organizing your finances.
Calculating your earnings as a self-employed worker
As a self-employed worker, you need to track all of your earnings throughout the course of the year and then report them on your tax return using Form 1040 Schedule C. This form allows you to provide detailed information about your business income and expenses.
First, you'll need to submit information about your business, including your official name and address.
Next, you’ll report your income from business activities. The income portion of your Schedule C should come from the 1099’s you received from companies that paid you, and any other self-employment income.
Expenses come next. This is where you’ll need to input your expenses by category for self-employment tax write-off purposes. The IRS has detailed instructions on how to navigate this section, including complex topics like the mileage deduction method vs. the actual auto expense method.
If you use Level’s Financial Toolbox, you’ll be able to generate a filled-out Schedule C report.
Start preparing for next year’s self-employment taxes
Going through this process, you’ll see how much easier things are with proper self-employment tax planning. This includes tracking business expenses, proactively saving for self-employment taxes, and making quarterly tax payments.
Level's Financial Toolbox is designed to help with self-employment tax planning. Using Toolbox, you can estimate your self-employment taxes for next year, set up automatic tracking of your business expenses, and set up a dedicated Tax Savings Account to automatically save for taxes.
Want to learn more about self-employment taxes? Check out our Self-Employment Tax Guide.