Are you a self-employed, work-from-home mom? Then you should do your homework on self-employment taxes in order to avoid any nasty surprises down the road. Check out the basics you need to know below!
Self-Employment Tax 101
First of all, all self-employed individuals must pay self-employment taxes (SE taxes) if they have at least $400 in annual net earnings. Specifically, you are self-employed if:
- You do business as an independent contractor or sole proprietor
- You’re a member of a business partnership
- You are in business for yourself in any other way
Filling Your Self-Employment Taxes as a Work-From-Home Mom
The categories above are really broad and encompass all sorts of freelancing and part-time gigs. In fact, more than 15 million Americans are self-employed. So, if you meet the criteria, you have to file a Schedule C (Form 1040) income tax return annually.
Using the 1040 form, you will have to make quarterly estimated tax payments. You will need to use last year’s tax returns to fill out your 1040, so make sure to track your yearly returns.
At the end of the fiscal year, you will have to file your annual tax return. To do so, you have to report your profit (or your loss). Simple enough, right?
Self-Employment Tax Breaks and Deductions
Thankfully for self-employed moms, you are taxed on your net income. This means that lots of business-related expenses are tax-deductible. Those write-offs will play a crucial role in making your work-from-home operations profitable.
Especially if you are transitioning from full-time employment to the realm of freelancing, you have to squeeze tax deductions as much as possible. The deductible expenses include:
- Startup costs
- Legal costs
- Business equipment and supplies
- Marketing and advertising
- Transportation and vehicle expenses
- Home office costs
- Health insurance and medical care premiums
- Several other house-related expenses for people who work from home
With such a long list, it’s easy to miss some obscure write-off. That’s why it’s important to either use tax software, or team up with an accountant to figure out what’s tax-deductible for you.
Moreover, you should look into pay stubs to keep your operations tidy. Pay stubs are a way to keep track of paid taxes, overtime, and business expenses. Want to generate pay stubs instantly? Check out ThePayStubs for the simplest way to create pay stubs online!
Finally, since 2018, business owners whose profits and losses go through their personal tax returns are eligible for the 20% pass-through tax deduction. This tax deduction allows work-from-home moms that qualify to reduce their taxable income by an additional 20% after deducting business expenses!
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Self-employment taxes may seem like a hassle, but hopefully, you now know where to start!
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