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Sunday, August 16th, 2026<\/strong> The new stream of revenue and the freedom is great, but many do not enjoy the paperwork and confusing tax issues which arises from owning their own business. <\/p>\n Most self-employed individuals are classified as “sole proprietors” or “independent contractors,” when it comes to tax purposes by the IRS.<\/p>\n This is true regardless whether you are turning a hobby into revenue, selling the proverbial “widget” into cash, or providing services to others. <\/p>\n As a self-employed person, what you’re required is to report your business revenue or loss results, on your personal income tax return. <\/p>\n There are a few guidelines along with issues you should keep in mind, if you’re wanting to pursue your entrepreneurial spirit.<\/p>\n As a self-employed individual, you’re required to report your small or home business profits or losses on Schedule C of Form 1040.<\/p>\n The business income earned is taxable to you as an individual. This applies even if you don’t withdraw any money from the business. <\/p>\n You are required to report your entire gross revenue, while allowed to deduct business expenses incurred in generating that revenue. <\/p>\n If your business efforts happens to result in a loss, the loss is generally deductible against your total income from all sources.<\/p>\n This however is subject to special rules which relates to whether your business is considered a hobby, and whether you have anything “at risk.”<\/p>\n If you are self-employed and work out of your home, you are entitled to deduct a certain percentage of costs and expenses which are applicable to the portion of the home used as your office.<\/p>\n Some of these expenses and costs can include utilities, telephone, Internet services, etc.<\/p>\n You are also eligible to claim these deductions, if performing administrative tasks from your home or if you store inventory there.<\/p>\n If you work out of your home while having another office at another location, you may also deduct commuting expenses between the two locations, as transportation expenses. <\/p>\n What most self-employed individuals find, is usually working more than the usual 40-hour week. There may be other deductions you can claim as a result.<\/p>\n What the majority of self-employed individuals are not aware of however are these deductions, and why a tax advisor may come in handy. <\/p>\n One negative aspect some consider to being self-employed, is the need to claim self-employment tax. <\/p>\n If there are salaried individuals, they are subject to automatic deductions such as FICA, etc. deducted from their paycheck.<\/p>\n Most self-employed individuals often don’t use a formal payroll for themselves, so the IRS recaptures these taxes through self-employment tax. <\/p>\n What this means is you’re required to pay self-employment tax of 15.3% on the first $142,800 worth of net income (2021).<\/p>\n The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).<\/p>\n If you happen to be self-employed, then you may be eligible to deduct for certain health insurance premiums you’ve paid for during the year. <\/p>\n This includes all medical, dental and long-term care insurance coverage that qualifies, for yourself, your spouse and your dependents.<\/p>\n The amount which is subject to self-employment tax is 92.35% of your net earnings, from all self-employment income.<\/p>\n You can calculate net earnings by subtracting all of your “ordinary” along with all necessary trade and\/or business expenses from the gross income, you derived from your business.<\/p>\n What’s required is you need to keep complete record of all your business activities. This include receipts of all your business income and expenses. <\/p>\n What you need to do, especially when in doubt, is to document everything related to income and money spent.<\/p>\n Begin by creating a filing system for each month you’re in business, and file every receipt, etc. appropriately. <\/p>\n All of your business travel expenses needs to be properly documented, which includes mileage from your car, when performing business tasks. <\/p>\n The rule of thumb is, if you have any issues or doubt when it comes to documenting something, just record it and file all the receipts. <\/p>\n
\nWhat the Internet has created is a nation of entrepreneurs, especially in the United States. There are now literally millions of self-employed individuals, pursuing their dream business. This is due to a shifting economy, layoffs, downsizing and the current health crisis. <\/p>\nWhat Is A Schedule C – Form 1040<\/h2>\n
Definition Of A Home-Based Business<\/h2>\n
Self-Employment Taxes<\/h2>\n
Health Insurance Premiums<\/h2>\n
How To Calculate Self-employment Tax<\/h2>\n
Record Keeping For Your Small Business<\/h2>\n
The Need For Tax Advice<\/h2>\n