Taxes and the Self-Employed

Taxes can be a confusing subject if you’re self-employed. Actually (if you’re in the U.S. at least) taxes can be massively complicated and confusing period, no matter what your employment status. The tax code is huge, and it’s probably safe to say that no one person actually knows everything in it.

If you work for yourself and are unsure of what to do when it comes to your taxes, you can do the same thing you’d do if you were employed and unsure: get help.

Getting advice

The IRS itself has always been helpful when I’ve called with questions, pointing me to resources available online and transferring me to people with more direct knowledge of what I’m asking about if the people I talked to didn’t know the answers themselves.

You can also get professional advice ahead of time before becoming self-employed, and at regular intervals as time goes by. For example, you could consult with a CPA or a tax preparer with the specifics of your situation. A CPA can also help you decide how to structure your business so that you have the best options tax-wise.

Special considerations

When you’re self-employed, there are some additional things to consider when it comes to taxes.

You’ll likely have to file estimated taxes quarterly, or have them filed for you too if you don’t feel comfortable doing it yourself. You’ll also have to pay self-employment tax, so don’t forget about that! There may be additional tax deductions you can take as well.

The important things are to set aside enough money as you earn the money for your taxes, and then to file and send them in on time.

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14 comments

  • Self-employed people are obligated to pay estimated tax payments quarterly. If an accountant prepares your tax return, they generally provide the estimated tax coupons for the year if your income stays the same.

    • That’s true if you’re strictly self-employed, with no salary-based income to have taxes withheld from. But if you have enough withheld from a salary (such as your spouse’s, or your own if you also hold a job) paying estimated quarterly taxes is not a requirement. The trick is to actually have enough withheld, which can be challenging. Quarterly is often the easier way to go.

  • I wish you would’ve made your last sentence BOLD. Too many proprietors don’t set money aside throughout the year and get stuck with a hefty lump sum. Much easier to break everything down monthly.

  • “The important things are to set aside enough money as you earn the money for your taxes, and then to file and send them in on time.” It always amazes me when people don’t do this.

    • Unfortunately, it’s not uncommon. It’s tempting to go ahead and spend what you made now, figuring that you’ll make more later to set aside for taxes. But that just doesn’t work!

  • I understand that self-employed people can actually pay taxes once a month. If you do that, then it becomes routine like paying other bills and you also don’t have to worry about accidentally spending it before it’s officially due.

  • Do you know if the self employment tax is only in the states? I live in Canada and I’m self employed for the first time in my life.

    I am just learning about all this and really have no clue at all. It really is confusing. At the moment I am just keeping receipts of all my expenses but I have not researched any further about what to do with them.

  • Oh boy taxes…that’s going to be a fun one this year. I guess at least it means I earned some good income!

  • Taxes are a big pain in the butt. But as long as your willing to pay for it, someone is definitely willing to help you with it.

    • That’s true. There are plenty of people out there willing to help. It’s just good to make sure they’ve got expertise in the area you need help with.