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Don’t Be Afraid to File Your Own Taxes If You’re Self-Employed

Self-Employed Taxes Self-Employment Tax Planning
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When it comes to “being your own boss,” Americans seem to have it covered. According to the Bureau of Labor Statistics, there were about 16.2 million self-employed workers in January 2023 — that’s 10.1% of the workforce.

And when tax season rolls around, many self-employed taxpayers like yourself think they need to hire tax professionals and shell out hefty income tax return preparation fees instead of filing their own taxes, which you may assume are too complex to tackle yourself.

Paying a tax professional is all well and good, but if you’re self-employed and looking to save, DIYing your taxes — or using paid tax software like TaxAct® — might be your best and cheapest filing option, especially if you’ve got minimal expenses. After all, you’ll need to track your business expenses and calculate deductions even if you hire a tax professional to file on your behalf.

If you’d like to cut down on preparation fees, consider giving it a shot on your own first. Here’s what you need to know if you plan to try it out.

The skinny on self-employed tax software

If you’re comfortable with online tax filing, many tax software companies offer specialized services for self-employed business owners. There’s no need to be a tax expert to use TaxAct’s software — that’s what we’re here for.

To get started, you simply need to gather your forms, relevant business expense receipts, and other necessary financial documents. Then you’re ready to jump right into our tax prep software and follow its prompts. If you’ve got questions, TaxAct in particular has a feature called Xpert Assist that allows you to connect with a real tax expert who can answer any questions you have*.

Another good resource to check out is TaxAct’s self-employment tax calculator and the IRS self-employed online tax center.

How to treat the home office deduction

Many self-employed workers are home-based. If that’s you, you’re probably familiar with the home office deduction.

If have a home space you use regularly and exclusively for business, you should take advantage of the home office deduction. You just need to make sure you’re figuring it correctly and abiding by IRS rules.

The key to claiming any deduction is making sure you follow the rules. The IRS outlines them all in Publication 587, but one thing to be sure of is that your office space is your principal place of business and is used regularly and exclusively for work. That means it doesn’t perform double duty as a guest room or anything else. But it doesn’t necessarily have to be a separate room — a corner of your bedroom with a desk, computer, and files can qualify for the home office deduction as long as you use it exclusively for business.

Calculating the home office deduction

When it comes to calculating the home office deduction, you have two options:

  • The simplified home office deduction, where you deduct $5 per square foot of your home office (up to $1,500 and 300 square feet).
  • Manual calculation of all your actual expenses, which includes both direct and indirect costs. For indirect costs (items like mortgage interest, taxes, maintenance costs, insurance and utilities), you must determine what percentage of the total cost was used solely for your business space. Only that portion is tax deductible — not the entire cost.

Regardless of which method you choose, your deduction is limited to your net business income. That means, if you experienced a business loss for the year, the home office deduction will not decrease your tax liability further.

The lowdown on self-employment tax

There’s no doubt being self-employed is a little more complicated when it comes to taxes than working for a traditional employer.

As a self-employed taxpayer, you must calculate and pay the self-employment tax (SE tax), which covers your tax requirements for the Federal Insurance Contributions Act (FICA). FICA funds Social Security and Medicare.

When you work for a traditional employer, your employer covers half of the FICA tax for you, while you pay the other half. But when you’re self-employed, you are on the hook for all of it since you’re both the employer and the employee. Don’t worry, though — you can claim 50% of the self-employment taxes you owe as a tax deduction. TaxAct can help you claim this deduction when you file your small business taxes with us. Our tax prep software can also help you calculate the amount of SE tax you should send to the IRS each quarter.

The self-employment tax is 15.3% of your self-employment income and is separate from the federal income tax. To cover that added cost, it’s worth planning out your cash flow for the entire year and understanding that you’re not just paying regular income tax — that you’re paying this additional amount of 15.3%.

Get your quarterlies straight

You’ll generally need to pay quarterly estimated taxes if your tax liability for the year is $1,000 or more. Since the IRS expects to receive tax payments as you earn your income, you’ll likely need to make estimated tax payments four times a year — in April, June, September, and January. The first payment for the current year is due the same day as the current year’s tax return on Tax Day. Even if you file an extension, you’ll still need to pay that same day.

To avoid feeling strapped for cash when each payment deadline comes around — and to avoid the steep underpayment penalties if you don’t pay enough throughout the year — it’s important to account for all your tax responsibilities ahead of time and set that money aside.

The best way to plan for your quarterly payments is to follow the estimated tax safe harbor rule, which says to pay 90% of the tax shown for the current year’s return or 100% of what you owed the previous tax year.

To make it simple, TaxAct can help you quickly calculate the amount you owe, and we can also help you set up quarterly estimated tax payments, so you’re covered throughout the year. To get an idea of what you may owe this year, check out our self-employment tax calculator.

*TaxAct® Xpert Assist is available as an added service to users of TaxAct’s online consumer 1040 product. Additional fees apply. Unlimited access refers to an unlimited quantity of expert contacts available to each customer. Service hours limited to designated scheduling times and by expert availability. Some tax topics or situations may not be included as part of this service. Review of customer return is broad, does not extend to source documents and is not intended to be comprehensive; expert is available to address specific questions raised by customer. View full TaxAct Xpert Assist Terms and Conditions.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.

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