How Do I File a Tax Return As A Self-Employed Business Owner or Independent Contractor?
Regardless of your W-2 income or your filing status, if you earned a net income of $400 or more from self-employment during the year, then you are required to file a tax return. Net self-employment income is your income after deducting allowable expenses. See the tax filing requirements.
Review the sections below for information on how to file a tax return with self-employed income:
How Do I Report Self-Employment Income on My Tax Return?
As a self-employed taxpayer, you will need to prepare your tax return using Form 1040 efile it. When you prepare your return on efile.com and indicate that you are self-employed, generally, you will also be directed to fill out one or more Schedule C or Schedule C-EZ to be included with your tax return. The Schedule SE will be automatically generated for you.
What Is Schedule C?
You use Schedule C efile it to report how much income your made or lost in your business, as well as any deductible expenses from your business.
What Is Schedule C-EZ?
Schedule C-EZ efile it is a simplified version of Schedule C. You can use Schedule C-EZ instead of Schedule C if all of the following are true:
Your total expenses are not more than $5,000.
You have no employees.
You have no inventory.
You are not using depreciation.
You are not deducting the cost of your home.
When you efile, you must fill out all of the information for a Schedule C. If the Schedule C is simple enough and meets IRS requirements, a Schedule C-EZ will be automatically generated by efile.com.
Do I File Schedule SE?
When you file a tax return as a self-employed individual, the Schedule SE efile it is used to calculate the self-employment tax you owe. Also, the Social Security Administration will use your Schedule SE to figure your Social Security benefits. The Schedule SE is automatically generated for you.
Do I Have to Pay Self-Employment Tax?
In general, you must file Schedule SE and pay self-employment tax if your net self-employment income is $400 or more.
Do Church Employees Have to Pay Self-Employment Tax?
If you had $108.28 or more in church employee income, then you must pay self-employment tax. Church employee income is income received from a church or church-controlled organization, not including income paid to ministers or members of religious orders.
Is There a Self-Employment Tax Exemption for Some Ministers?
If you are a minister (or priest, rabbi, etc.), a member of a religious order NOT under a vow of poverty, or a Christian Science practitioner, and you have a conscientious objection to Social Security insurance, you may exempt your net earnings from self-employment tax by filing Form 4361.
Is There a Self-Employment Tax Exemption for Some Religious Sects?
Under certain circumstances, if you have a conscientious objection to Social Security because of your membership in a religious sect, you may be able to exempt your net income from self-employment tax by filing Form 4029.
Do I Get a Self-Employment Deduction for Health Insurance?
If you were self-employed, you may be able to deduct the cost of health insurance premiums you paid for a child of yours who was under age 27 at the end of 2017. Find out more about this tax deduction for parents.
Are There Special Rules for Some Self-Employed Individuals?
Yes, there are special tax rules for newscarriers, babysitters, ministers/clergy/members of religious orders, and qualified joint ventures.
Do Newscarriers Have to File Self-Employment Tax Returns?
If you work as a newspaper delivery person, paperboy (or girl), or newscarrier, you are usually considered self-employed if:
- You deliver or distribute newspapers or perform related tasks, such as soliciting customers.
- Your pay is based on sales or other output and not on the number of hours you work.
- You work under a contract which states that you are not an employee for federal tax purposes.
If you meet all of the above requirements, then you are generally considered self-employed. Even if you are under age 18, you will have to pay into Social Security and Medicare by paying self-employment tax.
If you are under age 18 and you do not meet all of the above requirements, then you generally do not have to pay self-employment tax.
Are Babysitters Self-Employed?
Babysitters and in-home child-care providers are generally self-employed and subject to self-employment tax.
If you are a babysitter and you perform work in your home or in the homes of your clients, and you substantially control the manner in which you do your job, then you are most likely self-employed.
A Nanny, au pair, or other child-care provider that lives in their client's home, and that does not control the manner in which they perform their work, may be a household employee.
Do Ministers, Clergy, and Members of Religious Orders Have to File Self-Employed Taxes?
If you receive salaries, fees, allowances, or other compensation (housing, food) for doing work as a minister or member of a religious order, you generally have to pay self-employment tax on your income.
You may exempt your ministerial income from self-employment tax if you file Form 4361 and you receive an approval from the IRS. Income derived from other sources may still be subject to self-employment tax.
Do Husband and Wife Businesses (Qualified Joint Ventures) File Self-Employed Business Tax Returns?
In general, a husband and wife who jointly own an unincorporated business must file taxes for the business as a partnership. But partnership tax returns and recordkeeping can get very complicated. So the IRS has made an exception.
If a husband and wife are the only members of a joint venture (a fancy name for a business owned by two or more people), then they may agree together to elect for their business NOT to be treated as a partnership for federal tax purposes. Instead, it will be a Qualified Joint Venture. Now the couple files a joint tax return and prepares a separate Schedule C for each spouse, taking into account each spouse's share of income and loss derived from the business, as if they were each a sole proprietor.
Only couples that are Married Filing Jointly can elect for their business to be a Qualified Joint Venture. Corporations and LLC's do not qualify for this election.
I Am Self-Employed, So How Do I File a Tax Return?
As a self-employed taxpayer, you will file your return on a Form 1040, and you will generally need to attach Schedule C (or Schedule C-EZ) and Schedule SE to your return.
Whether you are an independent contractor or a statutory employee, efile.com makes it easy to prepare and efile your tax return. We will select the appropriate forms for you and help you fill them out correctly, then perform all calculations with 100% accuracy.
What Is a Statutory Employee?
There are a few special cases where, even though you fit the definition of an independent contractor, you are considered a statutory employee (an employee by statute) for tax purposes. If you are a statutory employee, your employer is not responsible for withholding income taxes from your pay, but Social Security and Medicare taxes will be withheld.
To be considered a statutory employee, all 3 of the following statements must be true:
There is a service contract that states or implies that substantially all the services covered by the contract are to be performed personally by you.
You do not have a substantial investment in the tools, equipment, or other property used to perform the services (other than vehicles or transportation facilities).
Your services are performed for the same payer on a continuing basis.
In addition, at least one of the following statements must be true:
You are a driver who distributes beverages (not including milk), meat, vegetable, fruit, or bakery products.
You are a driver who picks up and delivers laundry or dry cleaning.
You are a full-time life insurance sales agent, working primarily for one company.
You work at home with materials or goods which are supplied by your employer and that must be returned to your employer, who also provides specifications for the work that you do.
You are a full-time traveling (or city) salesperson who turns in orders to your employer from wholesalers, retailers, contractors, hotels, restaurants, etc., and the goods you sell are merchandise for resale or supplies for use in the buyer’s business.
You are a volunteer officer of an exempt organization who is paid by reimbursement or an allowance (unless you have to make an accounting of your expenses and pay the organization back the excess amounts).
I Am a Statutory Employee, So How Do I File a Tax Return?
As a statutory employee, you will generally receive a W-2 efile it from your employer. You must file your return on a Form 1040 efile it, and you will need to use Schedule C (or Schedule C-EZ) to report your income and expenses. You will not need to worry about Schedule SE, because your employer will have withheld Social Security and Medicare taxes from your pay.
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