Do you work for yourself or have your own business? Congratulations on being able to be your own boss! But as they say, with great freedom comes great responsibility too! And so, being self employed has its own set of tax obligations to fulfill. Similar is the case with low-income individuals or families. Both these categories of people need to learn how to file taxes in each capacity. Let’s take a look at things that self employed or low income people need to know about filing taxes.
What Are Tax Obligations for the Self Employed?
Self employed individuals have several tax obligations. We will take you through each one of them:
Annual returns & Quarterly estimated tax payments
The self employed are required to file an annual return and also pay estimated tax on a quarterly basis. If taxes are not paid throughout the year, a penalty may be assessed by the Internal Revenue Service (IRS).
However, there are some exceptions. If you make less than $1,000 in a year on self-employment alone, you don’t have to pay quarterly estimated taxes. This could be the case if you are working for yourself in a part-time job and it is not yet bringing you any significant earnings.
Failing to make quarterly estimated payments can result in a penalty at the time of filing an annual tax return on account of underpayment. In addition, if you wait until you file your taxes annually in April, you may end up with an inflated tax bill which may be difficult to pay all at once.
Therefore, it is advised to stay on top of things and make those estimated payments on time.
For most states, those estimated payments will be made on April 18, June 15 and September 15 and January 16 in the following year, based on profits for that quarter. Individuals can sign up for and use the Electronic Federal Tax Payment System (EFTPS) of the IRS to simplify the process of quarterly payments.
What is Self Employment Tax?
Self-employed individuals are responsible for paying a self-employment tax instead of having a company withhold it from their paycheck. The self employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare taxes.
If that seems like an eye-popping amount, keep in mind that if you work for a company and have Social Security tax withheld, it is your employer who is paying a portion of that tax on your behalf. Because you’re the employer as well as employee when self employed, you pay both portions of the Social Security tax and Medicare tax.
That said, if the net earning of a self employed individual is less than $400, they may not be required to pay self employment taxes on that amount. However, they must still file and report those earnings.
Also know about: self employed tax filing
Who All Has to Pay Taxes for Self Employment?
If you identify as self-employed, you are responsible for paying self-employment tax. According to the Internal Revenue Service (IRS), individuals are considered self-employed if:
- You are in business for yourself (including part-time business)
- You run a trade or business as sole proprietor or as independent contractor
- You are a partner in a trade business
If you are receiving 1099 forms, that is another indication that you are obligated to file a self employment tax. Just as company employees receive a W-2 form from their employer to report their income to the IRS, freelancers and self employed workers receive 1099 forms (either a Form 1099-MISC or 1099-K) from the companies or individuals that are paying them for their services.
It is always a good idea to review the IRS instructions for Schedule SE (self employment) before submitting Form 1040. The Social Security Administration uses the Schedule SE to figure the self employed individual’s benefits under the social security program.
How to File Self Employment Taxes?
So now the big question is how will you file your taxes correctly with the IRS by April 18, 2023, as a self employed individual? There are different ways to go about this and the choice is yours.
One, you can go the old school way. This means you have to start by collecting all the requisite paperwork to file your tax forms. Then, check the latest tax rules applicable and do the right calculations. Once you are sure you have done it right, fill up Form 1040 and submit it online or mail it in.
If you decide to file self employment taxes by yourself, you’ll need the following forms:
- Form 1040, also known as your U.S. individual income tax return
- Schedule C, which has your profit or loss from your business
- Schedule F if you’re a farmer.
- Schedule SE, to calculate your self employment tax
- Relevant 1099 form/s (1099-K/1099-MISC/NEC) from the client/s you have been working with
The second option is using any of the tax filing software online which are available at a nominal price. You can make the onerous tax filing process much easier with these software. But since it is all automated, it may miss crucial tax credit and deductions you may be entitled to. This is because it does not delve into your personal income status and variables.
For personalized attention to your finances and guidance in tax filing, consider hiring a qualified accountant or professional tax preparer. But the cost of those services may hurt you more than the deductions they get you entitled to!
What if you got the best of all these, and without paying a bomb? Which is the best tax filing software for the self employed? Where does one go for the best online tax filing for the self-employed? Especially if you are in the low-income bracket as a self-employed individual.
That Brings Us to Our Best Option for You: Beem
Beem is the one-stop solution for the cheapest tax filing option for the self employed, cheap tax filing for freelancers and arguably the best tax filing option for low income.
What is Beem? Beem is a cutting-edge digital financial services provider that combines the best of technology with the expertise of human resources. There are some irrefutable good reasons to use Beem rather than filing self employment taxes on your own.
You see, if one is self employed, many matters complicate taxes. There are plenty of self employment tax deductions you can take advantage of. Knowing what you can and cannot deduct can get complicated.
But professional platforms like Beem are on top of all these aspects and also on track with the latest developments and changes in IRS rules. It may save you money and keep you from overpaying your taxes – or underpaying, which can end up costing you back taxes. Using Beem can help you focus better on your core working obligations and your work and income and earnings.
A firm will charge minimum for a professional to prepare a Form 1040 and state return with no itemized deductions. Given that a self employed person’s taxes will often be more complex, the cost for them will probably be higher.
But, Beem does this with 100% accuracy!
Beem is effectively the answer to the search for the cheapest online tax filing for self employed individuals. What’s more, we support multiple states’ taxpayers and multiple filing formats, with 100% accuracy and maximum refund guaranteed.
So, get on Beem right away for the best tax filing experience for self-employed people. Navigate the process of tax filing as a self employed person, easily and effectively.
Ways to save on taxes for self employed or low income
If you are a self employed business owner, freelancer, or independent contractor wondering about tax filing, the number of deductible items you are entitled to may surprise you. The best tax filing software for self employed or freelancers helps you pinpoint write-offs you might otherwise miss. They also help streamline the filing process and identify your best tax rate.
Tax deductions and tax credits
When you’re looking for ways to save money on your taxes, you might want to go straight to tax deductions and tax credits. Tax credits bring down the amount of taxes you owe, while tax deductions lower your overall taxable income. There are standard deductions and itemized deductions. Almost everyone qualifies for these deductions and credits, but the amount varies depending on individual filing status.
Some of the most common itemized deductions are medical expenses above 7.5% of adjusted gross income, state and local taxes, property taxes, charitable contributions, mortgage interest, student loan interest. Remember though, each taxpayer can only take either their standard or itemized deductions, whichever is higher, but not both.
Here are the six ways to write off taxes through tax deductions:
- Startup costs: If you started a new business, you can deduct the costs of it from your tax bill.
- Home office expenses: You can deduct the cost of maintaining a home office if you have a space for work tasks only.
- Supplies and equipment costs: Deduct any office supplies or equipment necessary for your business from your taxes.
- Travel and vehicle expenses: You can deduct up to $25,000 in vehicle expenses in addition to the mileage deduction.
- Social Security and Medicare taxes: Self employed people can write off half of it at the end of the year.
- Health insurance premiums: Self employed people may also be eligible to deduct healthcare costs for them and their family.
Final Word on Filing Taxes for Self Employed or Low-Income Individuals
Self employed or working for somebody else, remember that tax regulations change every year. The key is to be always on track of your expenses and not keep it to the last minute.
If you are self employed and the process overwhelms you, an accounting software package to track your expenses will help. Or better still, connect with Beem for cheapest tax filing for self employed, best tax filing for low income and essentially end-to-end tax-filing support so that you can catch a breath, and focus better on your business to fortify your financial future.