If you are self-employed, you should keep in mind several major potential tax issues this year. First, be aware of whether you are self-employed. If you work out of your home part-time in addition to your regular job, you are likely subject to self-employment taxes. If you are self-employed, you will need to file some additional forms with your 1040. These include Schedule C or Schedule C-EZ, and Schedule SE. You will use Schedule SE to figure out what self-employment tax you owe in addition to your regular income tax.
Self-employed taxpayers can take some additional deductions. Most of the costs you paid to run your trade or business are deductible. The deductibility standard is one of whether the expenses are “ordinary and necessary” to operate your business. If an expense is common or accepted in the trade, it is ordinary. If it is helpful and appropriate for your trade or business, it is necessary. You may have to capitalize some costs, rather than deducting them in full. That means you will deduct part of the expense each year for multiple years. Self-employed taxpayers should generally make estimated tax payments. If you are required to do so and do not make the payments, you may be subject to penalties.
There are a variety of tax deferred retirement plan options available to the self-employed taxpayer. Contributions to such plans can substantially reduce current income taxes.
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