By For the tax purposes, you work on your own in case you are the sole owner of your business, a partner in a partnership, a sole member of a limited liability company, an independent contractor or you are self-employed. When you work on your own, you also have the responsibility of filing a tax return just like those taxpayers who are employed by a company. When it comes to filling the tax forms, a few of the requirements and forms to fill vary.
Start by filling out the 1040
In case you are an independent worker, you are supposed to file your taxes as 1040 taxpayer as well as the taxpayer. However, you must also include Form C to calculate your total net income. You must file a return and pay the taxes in case your net income is $400 or more than this amount.
Take care of all the minor and major financial details
By not being employed, it is your responsibility to keep all the records of your income and expenses throughout the year. You have to record daily the transactions on either a manual record or some software. You have to keep a file of all the relevant invoices and checks. It is a very important factor that will facilitate the process of your tax preparation and it is that you keep the expenses related to your income as an independent worker and your personal expenses in the separate divisions. It is advisable to have a checking account and a credit card specifically for the expenses related to your earnings. For a detailed look in this regard, please visit internet-taxation.co.uk.
Understand the Form C
This is the required way to detail your income and expenses as an independent worker and calculate the net income of yours without having any confusion at all. If your income for the corresponding year is $5000 or less than that, you can use the Schedule C EZ form, which is the simple version.
There are five key parts in the Form C which are mention below;
- In the first part, it includes the total gross income of the corresponding year.
- In the second part, it contains all the expenses related to the operation of your business, such as marketing, office expenses, rent, among others.
- The expenses directly related to the production of sales items are included in the third part as a reduction of revenues.
Tips To File Your Tax Return Forms If You Work On Your Own – Part 2
Let’s continue our topic on filling the tax return forms on your own.
- The fourth part includes the vehicle expenses. In case you use a vehicle to carry out your business, the expenses related to this are deductible. Here you have two options to deduct the vehicle expenses as you can calculate the miles used during the year or you can deduct the expenses of the gasoline, oil and toll, etc. In case you used your vehicle for both, the business and personal use, you can include only the expenses or miles related to your business in this way.
- Finally, in the fifth part, you are supposed to include the other expenses that have not been included in other parts of the Form C.
There are a few other factors you should consider when you fill the tax forms on your own which I will explain in the following paragraphs.
You may need to include other forms generally used to report the additional income, such as Form B for interest on the investments or savings accounts, Form E to report income by income, and Form F to report income from the agricultural activities, Form A to deduct the interest, taxes and extraordinary losses which are not directly related to your business and the annex SE to report the tax on own account.
Tax rate for the self-employed
As an independent worker, you are subject to the self-imposed tax rate established by law. The total rate includes 6.2% for the social security and 1.45% for Medicare. The total of this tax is calculated in Annex SE. The half of this tax is used as an income deduction on Form 1040. The information in Annex SE is used by the Social Security Administration to calculate your benefits. As a self-employed person, you can also qualify for the different credits offered by the regulated authorities.
You must make estimated payments
Every taxpayer has the responsibility to pay income taxes during the year as income is earned. The self-employed person must make the estimated payments four times a year. These payments must be for the same amount unless the income has not been uniform. To avoid a fine for not making the appropriate estimated payments, you must make estimated payments that represent 90% of the total taxes of the year, 100% of the taxes of the previous year, or should not be more than $1000 after deducting estimated tax when filling your tax return form.
