Paying taxes is a privilege of earning money. Be thankful that you are giving rather than receiving tax revenue. Self-employed people pay twice as much FICA, or payroll tax, or social security, than those with regular jobs. That's because we don’t have an employer to pay half of it. We pay self-employment tax, and it is figured on Schedule C. On this form you add up all your income and business expenses, then multiply by 15.3% (currently) to arrive at what you owe. This is in addition to your income tax which is reported on form 1040.
If you keep good books all year, doing your taxes is easy. Hiring an accountant is an option, but I found that when I used a professional, she asked for all the information that I would have put on schedule C myself. Doing your taxes yourself keeps you aware of how your decisions affect how much you pay. The first time you do your taxes is daunting, so do not wait until the last day. Start in February after all your 1009s have arrived. If you have been entering every transaction into an accounting program (such as QuickBooks) you will create a cash flow summary report for the year. If your system is set up properly, each line item will transfer to a line on the Schedule C.
You probably have a personal car that you also drive for business. Keep a log book in the car and write down the mileage every time you go somewhere for business. These miles are deductible.
Your home office is also a tax deduction. You can figure your office as a percentage of square feet or rooms in the house.
This blog cannot possibly go into every detail. Reading the instructions that accompany the forms is helpful, and there are resources online for specific questions. Some tax software will walk you through an interview. Doing your taxes will not be fun, but it does not have to be excruciating. Unless you have a complicated tax situation, you can do it yourself and be that much more on top your business.
