Friday, January 20, 2012

Self Employment Taxes

Unfortunately it is that time of year again. Tax time! Ugh.

For the record I am not a CPA and I do not play one on the internet.

But I have been self employed for many years and did work closely with many CPA's in my past life as an office manager.

Whether you make crafts, do freelance writing or any type of work from home, you will most likely have to file taxes either as an indidvual or a business.

If you made over 600.00 from one company in freelance work, they will send you a 1099. You must file that with your taxes. The IRS has gotten really good at matching up social security numbers with W-2's and 1099's so the days of disregarding 1099's is over.

Now if you were making a lot of money and do not have many business deductions, you should be filing self employment taxes quarterly. But many people do not make enough to have to do that. If you expect to make less than 1000.00 (click for IRS link) after business dedcutions; you should probably just file yearly.

Most new business's will find they show a loss the first couple years. This in turn translates to a tax deduction if you paid in taxes on other income or have a spouse that paid in.

Remember start up costs are deductible from income. So if you had 2000.00 in sales, but had 6000.00 in start up and material costs, you have a loss of 4000.00

Now that is putting it in really simple terms and its not quite that simple. But you get the gist.

Common Tax Deductions:

Website fees
Commissions Paid
Computers/printers/printing
Advertising
Materials
Shipping materials
Bank fees
Association fees (MC/Visa fees, checking account fees, Paypal fees)
Magazine subscriptions (that pertain to your work)

You can also use the home office deduction if you have a real home office.

The IRS has a lot of great info. Here is a good article on whether to file an IRS Schedule C or C-EZ

Just be glad you are not me. I have to file for my pony farm, my freelance writing income and my jam sales. My head hurts just thinking about it. But it is one of the parts of being able to work from home.

2 comments:

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