How to File Self-Employment Tax Return

Ines Zemelman, EA

• 07.10.21 • 5 min read

It’s crucial to remember that if you’re self-employed, you’ll pay the same income tax as a person who works for an employer and receives a paycheck or compensation. The distinction is not in the amount of money taxed but in the fact that no company will routinely withhold this tax from each paycheck when you work for yourself. As a self-employed person, you will be responsible for putting money aside.

Over the years, legislators have added various lines to the tax code to cushion the impact of the additional expenditures that self-employed people must bear to run their businesses. The Tax Cuts and Jobs Act (TCJA) made several adjustments to self-employed tax deductions, which was passed in December 2017 and took effect for the 2018 tax year. Many of these modifications are transitory and will be phased out by 2025, but others will remain in place.

The law impacts small businesses in various ways, including a 20% qualifying business income deduction for pass-through enterprises (those that pay taxes via individual taxpayers rather than a corporation).

How to get a tax refund if you’re self-employed?

If you’re self-employed, it’s critical to check what you’re authorized to deduct each year to maximize your firm’s profitability. Keep on reading below to see a few self-employed tax return examples: 

Home Office

 One of the most complicated deductions is the home office deduction. In summary, any workspace you use frequently and solely for your business can be claimed as a home office expense, regardless of whether you rent or own it.

Internet and Phone Bills

Whether you take the home office deduction, you could deduct the business part of your phone, fax, and internet expenditures. The trick is only to deduct expenses that are directly relevant to your business. For example, you might remove the spending of maintaining a business website that is tied online.

Health Insurance Premiums

If you are self-employed, pay for your health insurance premiums, and are not qualified to partake in a plan through your spouse’s employer, you can deduct all of your health, dental, and qualified long-term care (LTC) insurance premiums.

How does a self-employed tax return work?

As a self-employed person, you must typically file a yearly tax return and pay estimated tax quarterly. Self-employed people must pay self-employment tax (SE tax) in addition to income tax. Individuals who work for themselves are subject to the SE tax, a Social Security and Medicare tax. It’s comparable to how most wage earners’ Social Security and Medicare taxes are deducted from their salary. In general, when the term “self-employment tax” is used, it refers solely to Social Security and Medicare taxes, and not to any other type of tax like income tax. 

You must calculate your net profit or loss from your enterprise before determining if you are liable to self-employment tax and income tax. This is accomplished by deducting your expenditures from your business revenue. If your spending is less than your income, the difference is called net profit, and it appears on page 1 of Form 1040 or 1040-SR as part of your income. If your expenses exceed your income, the difference is referred to as a net loss. On page 1 of Form 1040 or 1040-SR, you can normally deduct your loss from your gross income. However, in some cases, your loss is limited.

How do I pay tax on self-employed income? 

How to do a tax return for self-employed? In terms of how to record self-employment income, it isn’t reported on a W-2 form. You won’t be able to design your own W-2 self-employed form. Instead, you must record your self-employment income on Schedule C (Form 1040), which is used to report income or loss from any business or profession you engaged in for profit as a sole owner. Schedule SE is where you’ll calculate your self-employment tax. If your self-employment revenue minus expenses are at least $400, you must file Schedule SE.

Is there a penalty for a late tax return filing? 

A penalty for late tax returns may be levied on taxpayers who fail to meet their tax responsibilities. The IRS imposes a penalty for a variety of reasons, including failure to:

If you do not pay a penalty in full, you may be charged interest. Penalties are assessed every month until the whole amount owed is paid. Understand the many forms of penalties and what to do if you receive one and how to prevent receiving one.

You will receive a notice or letter in the mail if you have been charged with a penalty. The penalty, the reason for the charge, and the next steps will all be detailed in the notice or letter. An identification number appears on these notices and letters. Verify the authenticity of the findings in your notification or letter. A penalty may not be imposed if the problem can be resolved in your notice or letter.