When you begin earning income by carrying on your own business, there is much to learn. Sole proprietors and independent contractors are two forms of self-employment.
One major hit of being self-employed, is the self-employment tax one takes on. This additional tax hit can be up to 15.3%. A Schedule SE, Self-Employment Tax, can be used to figure the tax.
Many times, self-employed taxpayers need to make quarterly estimated tax payments. Making these payments alleviates the large amount that would be due come tax season, and not paying could lead to penalties from the IRS of underpayment.
A big perk of running your own business are the allowable deductions you can take. Both ordinary and necessary business expenses can be deducted. These expenses, in most cases, can be deducted in the year paid or incurred. Some costs must be “capitalized”, depending on the amount, meaning the deduction is taken over a number of years.
Starting your own business is fun and exciting! Just make sure you’re aware of all tax tips and ways of running it correctly.