Self Employed Tax Tips from the IRS

There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed.

Here are six key points the IRS would like you to know about self-employment and self- employment taxes:

Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.

If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You figure self-employment tax using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.


You file an IRS Schedule C, Profit or Loss from Business, or C-EZ, Net Profit from Business, with your Form 1040.

If you are self-employed you may have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.

You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

For more information see the Self-employment Tax Center, IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

Links:

Publication 334, Tax Guide for Small Business
Publication 535, Business Expenses
Publication 505, Tax Withholding and Estimated Tax
Schedule C, Profit or Loss from Business and instructions
Schedule C-EZ, Net Profit from Business
Schedule SE, Self-Employment Tax and instructions
Form 1040-ES, Estimated Tax for Individuals

Understanding Business Expenses by Brigitte Thompson

The Internal Revenue Service (IRS) requires that our writing expenses be ordinary and necessary in order for them to be acceptable. An ordinary expense is defined as common and accepted in our profession. A necessary expense means we need to spend this money in order to operate the business. The expenses must not be considered extravagant. They must be an essential part of doing business as a writer. It is important to differentiate between personal expenses and business expenses.

Writers are able to realize some unique deductions which may be considered personal for other taxpayers. For example, a book on the history of New Mexico used for researching my fiction manuscript based in that state could be deductible as a writer.

Other potentially deductible expenses include tickets to a ballet used to build the character of a ballerina I am writing about and an instructional DVD used to improve my public speaking skills. Most writers will call these expenses research or professional development. We need to be able to justify each expense if audited, so be sure it is legitimate and has the supporting documents to back up the claim.

Check out my book, Bookkeeping Basics for Freelance Writers, to learn more about deductible expenses and how to reduce the income taxes you pay as a writer. You can read about it on my web site and on Amazon.com.

Business Expenses for Writers by Brigitte Thompson

It's tax season which, for most people, is about as welcome as a migraine. With some planning and organization, filing your tax return can become less painful.

I've compiled a list of common business expenses for writers. Of course, this does not include every possible deduction, but it offers suggestions that will help you reduce your taxable income.

The article is an excerpt from my book, Bookkeeping Basics for Freelance Writers.

Expenses Related to the Business of Writing

Employee or Self-Employed?

As your writing business grows, there may be times when you need to hire help. You also may be providing writing services and wonder if you are working for a company as an employee or if you are really self-employed.

The Internal Revenue Service has strict definitions they use when determining if someone is an employee or a subcontractor. You can learn all about it on their web site using this link:Employee vs Independent Contractor

Bookkeeping for Writers by Brigitte Thompson

Writers work in all different genres and write for a variety of media outlets. Some of us are business writers, others create romance novels and many write articles for magazines or copy for web sites. Putting words into print is our profession, but dealing with the financial aspects of our writing business can be challenging.

As an accountant, author and freelance writer, I can help. My newest title, Bookkeeping Basics for Freelance Writers, addresses issues writers face daily such as how to deduct travel expenses, differentiate between personal and business property and claim home office deductions.

Bookkeeping is an essential part of the business of writing, especially identifying and tracking expenses. Business expenses are considered an operating cost. The more legitimate business expenses that we can document, the lower our tax payments will be.

Understanding Expenses

The Internal Revenue Service (IRS) requires that our writing expenses be ordinary and necessary in order for them to be acceptable. An ordinary expense is defined as common and accepted in our profession. A necessary expense means we need to spend this money in order to operate the business. The expenses must not be considered extravagant. They must be an essential part of doing business as a writer. It is important to differentiate between personal expenses and business expenses.

Writers are able to realize some unique deductions which may be considered personal for most other taxpayers. For example, a book on the history of California used for researching my fiction manuscript based in that state could be deductible as a writer. Other potentially deductible expenses include tickets to a ballet used to build the character of a ballerina I am writing about and an instructional DVD used to improve my public speaking skills. Most writers will call these expenses research or professional development. We need to be able to justify each expense if audited, so be sure it is legitimate and has the supporting documents to back up the claim.

Recordkeeping Options

To justify expenses, it is important to establish a system of recordkeeping that works for you. Some things need to be recorded daily, while others can be done weekly or monthly. It is imperative that you get into the habit of saving and recording everything related to your writing business. All invoices, receipts, credit card slips and bank statements are essential documentation that should be kept.

Some people find it helpful to create a system for their financial transactions using envelopes and lined paper. Transactions can be recorded on sheets of 8 ½” by 11” paper attached to the front of a large clasp envelope with supporting documentation stored inside. This system works well for many writers because it is simple to set up and only requires the purchase of paper and envelopes. However, one disadvantage of this system is that it’s hard to see at a glance how much you have spent on supplies during the year or how much you have paid for your business phone line.

If you prefer computerized bookkeeping, these transactions could be recorded on a spreadsheet and receipts could still be kept in a clasp envelope. Microsoft Excel® provides an easy-to-use program which can help organize your records. One benefit of tracking this information with a computer spreadsheet is its ability to compute. Once you learn the program, you will be able to format columns to add a range of numbers. This eliminates the chance of addition errors haunting you during an audit. Unfortunately, spreadsheets do not offer much room for detail and are not able to generate financial statements.

If you would like to go a step further, QuickBooks® is a user-friendly accounting program which generates financial statements and budgets using the data you input. Again, entering the data allows for error free calculations and, as a bonus, custom reports compile the information so you can easily determine how much was spent on shipping manuscripts during the year, for example. Trial versions of accounting software can be found online, but the cost to purchase and the time spent learning it could be a disadvantage to some writers. Receipts would still have to be kept to document your deduction.

The choice is yours. Any system that works for you is acceptable to the IRS, as long as the pertinent information is retained. Learning what to record as writing expenses as well as how to properly document each transaction is important to the success of your writing business.

Please visit my web site for more information: Bookkeeping for Writers .