5 IRS Tax Facts for Self-Employed Small Business Owners | 2017

This post is part of the series, SmallBusiness.com Guide to Taxes: Information about taxes, tax preparation and filing. You can browse other posts in the series below.

  1. A Handy Calendar of Important Small Business Tax Dates | 2017

  2. Small Business IRS Tax Forms and Guide | 2017

  3. 5 IRS Tax Facts for Self-Employed Small Business Owners | 2017

  4. Things The IRS Wants You to Know about Filing Late and Paying Penalties | 2016

  5. It’s Tax Day: What Are Your Chances of Being Audited? | 2016

  6. Seven Last-Minute Tax Filing Tips From the IRS | 2016

  7. Five Things the IRS Wants You to Know About Filing a Tax Extension | 2016

  8. Home Office Tax Deduction Resources From the IRS | 2016

  9. Owning a Small Business and 14 Other Red Flags Increasing The Odds You’ll be Audited

  10. How to Keep From Overpaying Unemployment Insurance Taxes

  11. How to Save Tax and Personal Financial Data Without Having Your Identity Stolen

  12. How Much Tax You’ll Pay on Your $1.3 Billion Powerball Winnings

  13. A Dozen Business-Related Tax Incentives in the 2016 Budget, Spending Bill

  14. A Small Business Year-end Tax Tip That Helps Throughout the Year

  15. Six Tax Tips for Year-end Charitable Giving | 2015

  16. Small Business Tax Day Countdown: A New Taxpayer Bill of Rights

  17. Small Business Tax Day Countdown: Good News, Bad News on How-to Find a Good Tax Preparer

  18. Affordable Care Act Tax Information From the IRS

  19. Small Business Tax Day Countdown: Last Minute Tax Help You Can Find on the IRS.gov Website

  20. You Must Pay Taxes on Time, but Here are Ways to File an Extension for Turning in Your Tax Forms

  21. Small Business Tax Day Countdown: While Tax Preparation is Rarely Free, Online Tax Filing Is

  22. Know the Difference Between an Employee and an Independent Contractor

  23. Rollover Business Startups (ROBS) are Risky, May Violate Tax Laws

  24. New Ways States are Finding Small Business Tax Evaders

  25. Tax-free Commuter (Even by Bicycle) & Parking Expenses

  26. Add Up Your Healthcare Premiums With This ACA Tax Subsidy Calculator

Individuals in the U.S. who have income as a sole proprietor or independent contractor (or any other term applied to a small business comprised of one person) are responsible for paying income taxes related to self-employment. Here are five independent-worker (self-employed, etc.) tax-related items the IRS recommends you be aware of. They link to more information found on the tax agency’s website. As always, we will remind you: Seek professional advice from trusted advisors when you are dealing with issues related to finances, taxes or the law.

First: Do you have income subject to the self-employment tax? The IRS has a self-guided “online interactive interview” that will help you determine whether or not you do.

1 | Estimated Tax

Self-employed taxpayers generally need to make quarterly estimated tax payments. IRS Publication 505, Tax Withholding and Estimated Tax, has details on making those payments.

2 | Schedule C or C-EZ

Self-employed taxpayers must file a “Schedule C, Profit or Loss from Business” or “Schedule C-EZ Net Profit from Business” with their Form 1040. For expenses less than $5,000, use Schedule C-EZ. Each form’s instructions provide the rules for which form to use.

3 | Self-Employment (SE) Tax

For those making a profit, self-employment and income tax may need to be paid. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE to figure the tax.

4 | Allowable Deductions

Taxpayers can deduct expenses paid to run a business. Expenses are described as either “ordinary” or “necessary.” An ordinary expense is one that is common and accepted in an industry. A necessary expense is one that is helpful and proper for a trade or business.

5 | When to Deduct

In most cases, taxpayers can deduct expenses in the year paid or the year incurred. Some costs must be ‘capitalized,’ however. This means deducting the cost over a number of years.

More advice from the IRS

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources