Understanding taxes for the self-employed

Self-employed people need to know how to make payments, how to figure out how much they owe and what type of deductions they qualify for.

Self-employed individuals in Florida are responsible for paying a wide range of taxes. In some states individuals may have to pay income tax as well as self-employment tax. Some businesses may have to pay a form of income tax, but most individuals in Florida do not have this type of tax. A person is considered self-employed if he or she is in business for him- or herself, is a member of a partnership, or carries on a trade or business as an independent contractor or sole proprietor.

Making payments

Most employees have taxes withheld from their paychecks, but a person who works for him- or herself needs to pay taxes without the help of an employer. This can mean making estimated tax payments. First, the worker must figure out how much he or she is going to make in the year. For newly self-employed people this is a guess, but those who have been self-employed for years can use past income statements for an educated estimate.

Second, the person has to send money into the IRS. Individuals can send in quarterly taxes based on their estimated income. These payments are made four times a year.

Figuring out obligations

Before a person can figure out how much to pay in, he or she needs to consider what obligations there are. Anyone who works for themselves is responsible for paying Social Security and Medicare taxes. Some businesses may also have to pay sales tax or income tax. Once a person knows what type of taxes he or she has to pay in, it will be easier to make estimated payments each quarter. Tax payers can use Form 1040-ES from the IRS to better figure out what they need to be paying in each year.

Taking deductions

Self-employed people may be able to take deductions out of their yearly income based on their business. Common deductions include the following:

  • Travel expenses
  • Vehicle expenses
  • Home office
  • Office supplies
  • Research material

Some of the deductions, like home office, are a little more complicated than others. With this deduction, a person is able to use a percentage of mortgage payments, utility bills and home repair fees as business expenses based on the size of his or her home office. Anyone who is self-employed may want to keep receipts and other records in case of an IRS audit.

All Florida tax payers need to make sure they are making correct payments to the government every year even if they do not fit into the self-employed category. If a problem arises with a person's taxes, it may be beneficial to get help from an attorney who is familiar with the complexities of tax law.