Countdown Tip No. 5: Tips for the self-employed.
Being your own boss can be liberating and lucrative, but it can also be confusing when it comes to taxes.
If you own a business or are an independent contractor, you'll probably have to pay self-employment tax on top of your income tax. The self-employment tax covers Social Security and Medicare taxes, items that an employer would normally withhold from your paycheck if you worked for a company. Income tax is due if your net earnings from self-employment totaled $400 or more in 2012, so the self-employment tax applies to part-time workers, too.
Use Schedule SE to pay the self-employment tax. Use Schedule C to report income as a sole proprietor.
You also may have to pay estimated taxes the tax on income such as interest, rents or royalties, which can be paid in quarterly chunks. You can use Form 1040-ES to figure out your estimated tax.
As a self-employed person, don't forget that you can deduct some of the costs associated with running your company, such as mileage, product freight costs, start-up costs and machinery.
You may also qualify for a health insurance deduction to cover medical, dental or long-term care insurance premiums for yourself, spouse and dependents, including children under age 27, even if they are no longer a dependent.
More information about the self-employment tax, permitted business deductions and estimated taxes is available online at IRS.gov.
Coming up tomorrow: Watch out for fees when paying taxes by credit card.
Countdown to April 15 last-minute tips
Haven't filed your taxes yet? Check out The Tribune's Countdown to Tax Day series with information that can help as the deadline approaches:
April 4 • Where to get free help
April 5 • How to avoid tax scams
April 6 • The joys of filing electronically
Sunday • What's the Earned Income Tax Credit?
Tuesday • Don't miss out on the Child and Dependent Care Credit
Today • Understand your taxes if you're self-employed
Thursday • Watch out for fees when paying taxes by credit card
Friday • Reduce your taxes by saving for retirement
Saturday • Use the Taxpayer Advocate when tackling the IRS
April 14 • Don't ignore your taxes; file an extension to get more time