Self-Employment Taxes in Today’s Gig Economy

For example, this might include the cost of gas when driving to a client meeting. The IRS allows self-employed people to deduct the employer-equivalent portion (50%) of their self-employment tax when calculating adjusted gross income (AGI). You’re required to report all self-employed income – including cash, check, and electronic payments – even if you didn’t get a 1099.

Deduct Health Insurance Costs

Amounts above this threshold aren’t subject to the tax for Social Security, but they continue to be subject to the tax for Medicare. We offer free one-on-one audit guidance year-round from our experienced and knowledgeable tax staff. We’ll let you know what to expect and how to prepare in the unlikely event you receive an audit letter from the IRS.

How long does it take to file your taxes with TurboTax

You can’t take this tax deduction if you work from home occasionally. Once you’ve entered all your deductions, subtract them from your gross income to get your net Schedule C profit or loss. One thing to keep in mind, you are also able to deduct half of your self-employment taxes which lowers your taxable income. For example, if you sell cake toppers on Etsy and also drive for a ridesharing company, you will have to report the income and expenses for those businesses on two separate Schedule Cs. These out-of-pocket expenses will offset (reduce) your earnings, lowering the amount of income you pay taxes on. Missouri freelance writer Kristi Waterworth Hemmann says that keeping current with estimated tax payments requires discipline.

Q: Who has to pay self-employment tax?

Here are some of the most common self-employed tax deductions and credits. As a sole proprietor, you might also have to send 1099 forms to people and other businesses that you made payments to during the tax year (the IRS gets a copy, too). A 1099 form is a type of information return, which are tax forms used to report income and other relevant financial information about individuals, businesses, and organizations. In this guide, we’ll highlight some of the most common tax deductions for independent contractors and explain how to claim them on your tax return. Sometimes your side hustle or business might not yield a profit after all of your business expenses are taken into account.

If you regularly and exclusively use a home office specifically for your business, you can claim the home office deduction related to that space. You also have to pay federal income tax, which is based on a marginal tax rate. Depending on how much you earn, portions of your income will be charged at the corresponding rate for each tax bracket. Plus, unless you live and operate your business in a state without an income tax, you’ll likely have to pay state income taxes, too.

Schedule C can seem daunting, but filing will be easier if you plan ahead and keep good records. Millions of people have diversified the way they earn income by joining the gig economy. Being in the gig economy could be a way to help someone meet financial goals, run a small business, have a second job, or even have multiple side gigs. However, just like any other income, gig income must be reported, and specific tax forms are required to report this self-employment income.

Examples of industry-specific expenses for common self-employed professions.

If you’re self-employed, chances are you’ll have to pay taxes on your earnings. This includes self-employment tax (Medicare and Social Security taxes), federal, and sometimes state income tax. Even though we only have to file a federal income tax return once per year, we have to pay taxes throughout the year as we earn income.

• You can’t take this tax deduction if you work from home occasionally.
• ” If you were paid in cash or via a mobile payment service for your services, you are still required to report your cash earnings as business income.
• That’s because they’re carrying the full burden of paying for their Social Security and Medicare.
• Elizabeth is a freelance writer with extensive experience covering commercial insurance and personal insurance lines.

So, you’ve started a business or decided to freelance, and freed yourself from the daily grind of that old job. In fact, you’ll owe tax that you never had to pay as an employee if you made $400 or more in self-employment net income. You will pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C in addition to regular income tax on it. You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).

However, at this time, the deduction is set to expire after the 2025 tax year. Individuals working in the gig economy will still pay traditional income taxes. However, if you make over $400 per year from your work as a self-employed worker, then you also need to pay self-employment tax.

So, for example, you can’t deduct expenses for a room in your home if you use the space both for business and personal activities. Also note that there are limits to how much of your income is subject to the Social Security part of the self-employment tax. For 2024, the first $168,600 of your combined wages, tips, and net earnings from self-employment is subject to the Social Security portion (increasing to $176,100 for 2025).

In this guide, we’ll walk you through your tax obligations, provide some pointers for maximizing deductions, and show you how to file self-employment taxes with TurboTax. If your business owns real estate or other taxable property such office furniture, machinery and computers, you might owe state or local property taxes as well. There are many other types of 1099 forms and information returns. Generally speaking, you must send the person or business that received your payment a 1099 form by January 31 of the following year, and the IRS must receive a copy of the form by February 28. Check the IRS’s general instructions for information returns for details. Sole proprietors and other self-employed people might be able to deduct the cost of health insurance.

• These traditional IRA contributions also must be made by the April 15 tax deadline, even if you have filed an extension.
• The self-employment tax rate is 15.3% and consists of 12.4% for Social Security and 2.9% for Medicare.
• For purposes of this deduction, a “car” includes a van, pickup, or panel truck.
• Your share is automatically taken out of your paycheck so it doesn’t typically show up on your tax return.

This section is for any business that sells goods to customers, so skip Part III if you’re in a service business—consultant, yoga teacher, software programmer, day care center owner, etc. Taxpayers can make an election to opt out of the new bonus depreciation rules and use 50% bonus first year depreciation per the prior rules for the first tax year ending after September 27, 2017. We’ve broken down the form into sections, so you can see what the IRS expects from you and what records you’ll need at tax time. Whether you need one or multiple Schedule Cs, don’t be concerned about selecting the right number of Schedule Cs.

Special rules apply to fishermen, farmers, nonresident aliens, certain higher-income individuals, and some household employees. Keeping track of taxes as a self-employed individual can be tricky, but don’t worry. TurboTax self employment tax turbotax can help with quarterly tax dates, calculating your tax liability, and paying your estimated taxes. You can also use TurboTax Premium—designed for self-employed taxpayers like you—to get every tax deduction and the highest refund possible.

Or have a dedicated expert do your self-employment and investment taxes for you with TurboTax Live Full Service. Self-employment tax is an amount of money paid on self-employment net income to cover a person’s Medicare and Social Security tax. But when figuring your self-employment tax on Schedule SE, Computation of Social Security Self-Employment Tax, the taxable amount is $46,175.