Small business owners, sole proprietors and/or a self-employed individuals generally have to make estimated tax payments to the IRS if you expect to owe tax of $1,000 or more when you file your annual tax return. This tax is known as the self-employment tax, and the payments you make are called estimated tax payments. Here are five crucial things you should know about self-employment tax.
Whether you are an online seller, freelance writer, or a small business owner, don’t forget to make your quarterly tax payments throughout the year. If you don’t make quarterly payments, you will need to pay back all of those taxes as soon as possible in addition to penalty charges. This can be difficult when you're also saddled with quarterly taxes for the upcoming year.
A cup of coffee while discussing business, a taxi ride to a client’s, a ream of paper from Office Max. All of these small expenses add up, so write them all off—and keep every receipt. For some expenses, like meals under $75, the IRS doesn’t require that you keep receipts but it’s recommended that you hold on to them anyway. If you’re ever audited, the Uncle Sam will want to see all your records. The more proof you have that your expenses are legitimate, the better off you’ll be.
Every business transaction you make should be routinely organized using the standard method the IRS expects. This is commonly referred to as bookkeeping, and for most small-business people it's considered a headache. Nevertheless, bookkeeping is absolutely necessary for helping to ensure an accurate tax return and minimizing your risk of an IRS audit. Here are a few ways to make bookkeeping easier:
Hire an accountant or tax pro to do your books for you. This is the ideal option, but it can be expensive.
Purchase desktop accounting software. This is a more affordable option, but popular software choices like QuickBooks often have a steep learning curve and have a lot more bells and whistles than most self-employed people want.
Use an online accounting product (also known as web-based accounting software). Online accounting like Outright is the growing choice among self-employed people today because it is both affordable and easy.
Make sure you have all of your 1099 forms before preparing your tax return. Freelancers and contractors should be sent a 1099 from any client who pays more than $600 for services during the year.
If any of your 1099 information is missing from your tax return, the IRS will eventually find out and require you to pay taxes on any income you didn’t report. You will also be slapped with penalty and interest charges. This is referred to as paying back taxes.
Outright is an online accounting method that automates most accounting tasks for you. It’s made to be simple and it: