Ah, summer – the time of year when some people dive into entrepreneurship. Whether it’s a summer job, a part-time gig, a side-hustle or a small business, you may be considered self-employed. If that’s you or someone you know, here are a few tips to help navigate your tax situation.
Know If You’re Self-Employed
If your income is from a business or service, for example, working as an independent contractor in sales, or a social media sensation to babysitting, housecleaning, gardening, and even being a freelance promoter, etc.; that type of income is self-employment income. Your self-employment income is reported on Schedule C or Schedule C-EZ, Profit or Loss from Business. However, you will be able to reduce the income you make by being able to claim business expenses, such as supplies, auto mileage, and cost of goods sold.
TurboTax Self-Employed helps uncover industry-specific business deductions you may not have even known you were eligible for, saving you money on your taxes. With TurboTax Self-Employed you don’t need to know tax rules or forms. TurboTax Self-Employed will put your business income and deductions on the correct forms based on your entries. When you use QuickBooks Self-Employed you can track your business income, expenses and mileage and your information is automatically transferred to your TurboTax Self-Employed tax return.
Withholding and Estimated Taxes
If you’re an employee, your employer withholds tax from your paychecks. If you are self-employed, you may have to pay estimated taxes directly to the IRS on set dates during the year. You are expected to pay estimated taxes if you expect to owe $1,000 or more annually.
All Income Must Be Reported
Although you can earn a certain amount of income each year without having to pay taxes or file a tax return, if you are required to file a tax return, all income you receive from any source should be reported on your return. That includes income from side jobs, self-employment, barter exchanges, and any sort of fellowship for which you perform services. If the net income after subtracting expenses is $400 or more you are required to file a tax return and pay self-employment taxes, which will be included as a part of your personal income tax return on Form 1040.
Starting in 2022, if you receive payment for goods and services through a third- party payment network, like Venmo or PayPal or CashApp, your income will be reported on Form 1099-K if $600 or more was processed. This has changed from the old reporting requirement for Form 1099-K of 200 transactions and $20,000. This change could impact those working in the gig economy, online sellers, independent contractors, and other self-employed business owners starting with their tax year 2022 return (the taxes you will typically file in 2023).
Sometimes you aren’t paid in cash and instead, you receive services or goods in exchange for your self-employment work. That’s called bartering, and you must report the fair market value of the goods and services you receive. For example, if you spend the summer tutoring your neighbors’ children and you receive a credit for the restaurant they own or a bicycle from the bicycle shop they own, then the value of what you received is considered self-employment income to you.
Filing A Tax Return
If you can be claimed as a dependent on someone’s tax return, you’ll still need to file a tax return if your income exceeds the minimum gross income filing requirements, or if your self-employment income is $400 or more. Even if you aren’t required to file a tax return, you’ll still want to file if income taxes have been withheld from any income you had since you may get that money back or it could also generate a tax refund if you’re eligible for any of the refundable tax credits like the American Opportunity Tax Credit or the Earned Income Tax Credit.
Don’t worry about knowing these tax rules. You can easily track your business income, expenses, mileage, and figure out your estimated taxes year round with QuickBooks Self-Employed. At tax time, your information can easily export from QuickBooks Self-Employed to your TurboTax Self-Employed tax return making tax filing effortless. TurboTax Self-Employed helps uncover industry-specific tax deductions saving you money on your taxes.
If you have questions, you can connect live via one-way video to a TurboTax Live Self-Employed tax expert to get your tax questions answered. TurboTax Live Self-Employed tax experts are available in Spanish and English and can review, sign, and file your taxes or you can have a TurboTax Live Self-Employed tax expert do your taxes from start to finish from the comfort of your home.
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