Summer is the time of year when some people decide to start their own business. You could be deemed self-employed if you have a summer job, a part-time employment, a side hustle, or a small business. If you or someone you know falls into this category, here are a few pointers to assist you handle your tax situation.
Know If You’re Self-Employed
Self-employment revenue is earned from a business or service, such as working as an independent contractor in sales, or becoming a social media sensation, or babysitting, housecleaning, gardening, or even being a freelance promoter, for example. Schedule C or Schedule C-EZ, Profit or Loss from Business, is where you record your self-employment income. You will, however, be able to minimise your earnings by claiming business expenses such as supplies, mileage, and cost of products sold.
TurboTax Self-Employed can help you find industry-specific business deductions you may not be aware of, saving you money on your taxes. You don’t need to know tax rules or forms to use TurboTax Self-Employed. Based on your entries, TurboTax Self-Employed will place your business revenue and deductions on the appropriate forms. You may track your business income, costs, and travel using QuickBooks Self-Employed, and your data is instantly uploaded to your TurboTax Self-Employed tax return.
Withholding and Estimated Taxes
If you work, your employer deducts taxes from your paychecks. If you are self-employed, you may be required to pay anticipated taxes to the IRS on predetermined days throughout the year. If you plan to owe $1,000 or more in taxes each year, you must pay estimated taxes.
All Income Must Be Reported
Although you can earn a specific amount of money each year without paying taxes or filing a tax return, if you are required to file a tax return, you must record any income you receive from whatever source. This includes earnings from side occupations, self-employment, barter trades, and any fellowship for which you provide services. You must file a tax return and pay self-employment taxes if your net income after expenses is $400 or more. These taxes will be included in your personal income tax return on Form 1040.
If you receive payment for products and services through a third-party payment network, such as Venmo, PayPal, or CashApp, your income will be reported on Form 1099-K starting in 2022 if you received $600 or more. This is different from the previous reporting requirements for Form 1099-K, which were 200 transactions and $20,000 in total. Starting with their tax year 2022 return, this shift could affect persons in the gig economy, internet vendors, independent contractors, and other self-employed business owners (the taxes you will typically file in 2023).
You may not get compensated in cash for your self-employment activities and instead receive services or items in exchange. This is known as bartering, and the fair market value of the goods and services you get must be reported. For example, if you spend the summer instructing the children of your neighbours and obtain a credit for their restaurant or a bicycle from their bicycle shop, the value of what you received is deemed self-employment income to you.
Filing A Tax Return
If your income exceeds the minimum gross income filing requirements, or though your self-employment income is $400 or more, you must file a tax return even if you can be claimed as a dependent on someone else’s return. Even if you aren’t required to file a tax return, you should do so if income taxes were withheld from any income you received because you may be able to reclaim that money or receive a tax refund if you qualify for any of the refundable tax credits, such as the American Opportunity Tax Credit or the Earned Income Tax Credit.
Don’t sweat it if you don’t understand the tax laws. With QuickBooks Self-Employed, you can effortlessly track your business income, expenses, miles, and calculate your estimated taxes all year long. Your data may be readily exported from QuickBooks Self-Employed to your TurboTax Self-Employed tax return at tax time, making tax filing a breeze. TurboTax Self-Employed will help you find industry-specific tax deductions, which can help you save money on your taxes.
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