The Complete Guide To Filing Self-Employment Taxes

Your quarterly taxes are an estimate, but you want to make sure that this estimate is as accurate as possible to avoid underpaying. To calculate your estimated taxes, you will need to do the following:

• Calculate Estimated Annual Income: You can do this by looking at your returns and documents from the previous year. If you’re newly self-employed, you can review your records up to this point to estimate how much you will make for the year.
• Subtract Deductions: Don’t forget to calculate any tax deductions you plan to take. Subtracting these deductions from your estimated annual income gives you your adjusted gross income (AGI).
• Calculate Income Tax: Multiply your adjusted gross income by the tax rate found in the current IRS tax brackets. These change annually, so make sure you’re using the correct numbers. The amount you come up with from your calculations is the amount of income tax you owe.
  • Let’s look at an example. You have calculated your adjusted gross income, and it is $9,000. You are a single filer. According to the IRS tax brackets, your income tax is 10% of your adjusted gross income (AGI). Therefore, you multiply 0.10 (10%) x $9,000 and get $900. That means you owe $900 in income taxes.
• Calculate Self-Employment Tax: If you made over $400, you are required to pay the self-employment tax. To do this, you first take your estimated annual income (not your AGI) and multiply this by 92.35%. This number is your taxable income. Then, your taxable income is multiplied by 15.3%. The final number is the amount of self-employment tax you need to pay.
  • Let’s take another look at an example. Your estimated annual income is $12,000. We multiply this by 0.9235 (92.35%) to get $11,082. This is your taxable income. Multiply your taxable income ($11,082) by 0.153 (15.3%) to get $1,695.55. This is the total amount of your self-employment tax.
• Add Income Tax & Self-Employment Tax Take the two numbers calculated above and add them. Your income tax ($900) plus your self-employment tax ($1,695.55) equals $2,595.55. This is your estimated annual tax liability.
• Figure Out Quarterly Payments: Take the total estimated annual tax liability and divide this number by four. This will show you how much you need to pay each quarter. Taking from our example, $2,595.55 divided by four is $648.89. You will need to pay this amount by each due date.

Financial experts recommend saving 25% to 30% of each paycheck to cover income and self-employment taxes. Set up a separate savings account and immediately deposit at least 25% of each paycheck as soon as you get paid.

Let’s look at the example from Step 1. We determined that your estimated annual income was $12,000 and that your total estimated annual taxes were $2,595.55. Let’s assume you save 25% from each paycheck. Over a year, this means that you saved $3,000 ($12,000 x 25%). Your estimated annual taxes are $2,595.55, meaning that you are saving plenty of money to cover your tax liabilities.

Once it’s time to do your quarterly taxes, you need to complete IRS Form 1040-ES. This form has step-by-step instructions that make it easy for you to complete it accurately. You will need your estimated adjusted gross income and deductions to complete your form. Once complete, the form will need to be submitted to the IRS.

You will also submit your payment with your form. There are several ways to pay your quarterly taxes:

• Through the IRS website via credit card, debit card, or electric check
• By mail with check or money order
• Cash payment through an IRS retail partner

Addresses for submitting your 1040-ES and information about payment methods can be found in the instructions of Form 1040-ES.

You can expect to receive Form 1099-MISC from any clients that paid you more than $600 in a year. Even if you don’t receive a 1099-MISC from a client, you are still required to report this income.

The IRS requires that 1099-MISC forms be sent out by January 31, so keep an eye on your mailbox (or your email) for the first few weeks of February. If you do not receive your 1099s by mid-February, contact your client.

Collect your 1099s and other income records (such as transactions posted through your accounting software). These will be required to calculate your income when filing your taxes.

Fortunately, you can lower your tax liability with deductions. Deductions are expenses that were paid to operate your business. There are several deductions you may be eligible for, including:

• Self-employment tax deduction
• Home office deduction
• Office supplies
• Mileage

These are just a few of the deductions that you can use to lower your tax liability. Check out our list of small business tax deductions to find more ways to save on your next tax return.

Next, you need to fill out the appropriate self-employment tax forms, which may include:

• Form 1040: This is the US Individual Income Tax Return form. If you’ve filed for yourself in prior years, you’re already familiar with this form.
• Schedule C: Schedule C is used for reporting your income and expenses from your business. It is filed with your Form 1040.
• Schedule SE: Schedule SE is used for reporting self-employment tax. It is filed along with your Form 1040.

There are two ways to fill out your tax forms:

• Online with tax filing software (e-filing)
• Manually downloading, printing, and submitting paper forms by mail to the IRS

E-filing is the fastest and easiest way to submit your return to the IRS. If you meet certain conditions, you may even be eligible to file your taxes online for free.

You may not be required to make an additional payment when your annual return is filed if you pay quarterly taxes. In rare instances, you may have even made an overpayment and will receive a tax refund from the IRS.

If you owe taxes, you will need to make your tax payment by April 15 (or the next business day if April 15 falls on a weekend or holiday). This applies even if you’ve requested an extension.

If you complete your return early, you aren’t required to submit your payment with your return. However, payment must be submitted by the due date.

You can pay your tax bill online by credit card, debit card, or eCheck. You can submit a check or money by mail, or you can make a cash payment through a retail partner.