There’s plenty of amazing benefits to being your own boss; you can usually control your own schedule and to a degree, you can control your income.
But anyone that has ever been self-employed knows that there are plenty of disadvantages as well. Your income can vary throughout the year and you have to control your own schedule.
Another downside for the self-employed is the less than straightforward way in which they have to track their income and expenses and also pay taxes.
Whereas most people have their employer withhold taxes from their paycheck and then receive a W-2 at the end of the year and then they can easily input it into the tax software to check their refund, self-employed persons have to track every little piece of income they receive manually to report it to the IRS.
How Do Self-Employed Persons Pay Taxes?
The IRS does not like to receive their money all in one chunk at the end of the year so self-employed persons must estimate their income for the year.
If their estimated income leaves them owing by the end of the year more than $1,000 in income taxes or they expect that their federal income tax withholding will be less than 90% of the tax they will owe by the end of the year or they expect their income tax withholding will be less than 100% of the total tax shown on the previous year’s tax return, then they must pay estimated taxes throughout the year.
So Do I Have to File a Tax Return If I’m Self-Employed?
Just like any other taxpayer, if you are self-employed and would like a refund of the amounts you paid in estimated taxes throughout the year, then yes, you would have to file a tax return.
Aside from this, there are rules in which you have to file a tax return regardless of it is just for a refund of amounts paid over the tax liability.
The rule for self-employed persons is that they must file a tax return if their gross income is at least as much as the filing requirement for their age and filing status.
In general, the filing requirement for those under 65 and that are filing Single will be gross income of at least $10,400 (indexed for inflation) and for those filing married filing jointly $20,800 (indexed for inflation) of gross income.
Click here and go to Table 1-1 in Filing Information to review the tables if you do not match the criteria above.
This article does not constitute financial advice. For help with your particular situation, please contact your local specialist.