Are you self-employed and need to know what tax forms you must file on your income tax return? Read on to find out.
By “self-employed”, I am referring to a person who is compensated for selling goods and/or services as an independent contractor or freelancer. I am not referring to an employee who receives a Form W-2 at the end of the year from his/her employer.
Another common term used for the self-employed person is “sole proprietor”. And since you are a sole proprietor, there are specific tax forms that you must include as part of your personal income tax return. Here they are:
Schedule C. Profit or Loss From Business (Sole Proprietorship).
This is where you begin. This form is used to report income received (aka “sales” or “revenue”) and expenses incurred (aka “business deductions”) in the course of operating your small business or self-employment activity. There is also a scaled down version of Schedule C for very small businesses – it’s called Schedule C-EZ.
Form Schedule SE. Self-Employment Tax.
This is used to calculate the self-employment tax, which is your version of the Social Security and Medicare taxes paid by employees.
Form 4562. Depreciation and Amortization.
This is for reporting depreciation expense, the Section 179 deduction, and amortization expense. These expenses are related to the purchase of business assets such as office equipment and furniture, machinery, vehicles, buildings and intangible assets such as goodwill.
Form 8829. Expenses for Business Use of Your Home.
This is for calculating the infamous home office deduction. Many self-employed people have been reluctant to take this deduction for fear that it increases the odds of an IRS audit. I say if you can take it, take it!
Form 1040-ES. Estimated Tax for Individuals.
This is not actually part of your Form 1040, but you will use this form to make quarterly estimated tax payments during the year (assuming your business is profitable). Since our tax system is based on the concept of “pay as you go”, you should not wait until the end of the year to pay your income tax and/or self-employment tax all at once.
There are other forms that may be required, depending on your particular situation. But this list is enough to get you started, as these are the most commonly used forms for the typical self-employed person. Many dollar amounts are transferred from one form to another, and many of these forms are not for the numerically challenged. So while it is certainly wise to familiarize yourself with these forms, it is probably best to obtain professional help if you’re just starting out and want to make sure that your income tax return is prepared correctly.