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-EmployedIf 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.
A QuickBooks ProAdvisor like Mike McVay, Certified QuickBooks ProAdvisor helps uncover industry-specific business deductions you may not have even known you were eligible for.
Withholding and Estimated TaxesIf 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 ReportedAlthough 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 the 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.
Barter IncomeSometimes 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 ReturnIf 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 your paycheck 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. Mike McVay, Tax Accountant in Pensacola, FL can help you pay the least amount of tax.
Call Mike McVay today at 850-725-5696
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Mike McVay, Certified QuickBooks ProAdvisor
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