Tax time is tough. There’s no question about it. It’s even more challenging, though, when you’re self-employed and trying to deal with the sometimes confusing rules and record keeping that can go hand in hand with running your own show. The Pennsylvania Institute of Certified Public Accountants answers some of the most frequent questions about taxes and self-employment, and offers tips that can help you lower your tax bill.
What qualifies as self-employment income?
Self-employment income is money you earn as an independent contractor or in running your own business. It may include earnings from part-time work, even if you are employed elsewhere in a staff job. Your taxable self-employment income is what’s left after you deduct qualified expenses. If you make $50,000 selling jewelry, for example, and your ordinary and necessary costs of doing business total $21,000, your self-employment income is $29,000. The taxes on that amount will include self-employment tax, which includes your Social Security and Medicare taxes. Be aware that the self-employment tax returned to 15.3 percent in 2013 after being reduced to 13.3 percent through 2012. Since you don’t have an employer withholding your taxes, you generally must pay estimated taxes quarterly.