Self-employed individuals enjoy the freedom and flexibility of being their own boss, but with that independence comes the responsibility of managing their finances and taxes. Unlike traditional employees, self-employed individuals must handle their own tax payments, including income tax and self-employment tax, which covers Social Security and Medicare contributions. They can take advantage of various deductions, such as home office costs, travel, your cell phone bill, and other business expenses, which can significantly reduce their taxable income. It's important for self-employed individuals to maintain accurate records, set aside money for taxes, and consider making estimated tax payments throughout the year to avoid surprises at tax time. Understanding these key aspects can help self-employed individuals thrive in their business while effectively managing their tax obligations.

Self-employed income is the cash you earn from being your own boss—whether you’re freelancing, running a business, or doing gig work. Instead of the usual W-2 that employees get, you’ll be receiving a 1099 showing the income you received from each company you work with. The best part? Your income can come from all sorts of sources, whether it's clients, customers, or even gig apps, giving you more freedom and control over your earnings.

There are a few types of 1099s that you could receive:

Think of business codes, or NAICS codes, as the compass guiding your self-employed path. They categorize your business activity for tax purposes, ensuring you’re reporting your business to the IRS under the right activity. When it’s time to tackle your taxes, choosing the right code that accurately reflects your work is key since it helps the IRS grasp what you do. Selecting the right code can streamline your tax process and ensure you're accurately representing your business. You can find a list of the NAICS codes here!

Business expenses are a big deal for gig workers and small business owners because they can really help trim down taxable income. By deducting things like supplies, travel, and home office costs, you’re essentially lowering what you owe in taxes so more money stays in your pocket! Plus, keeping tabs on these expenses makes tax season a lot less stressful and helps you stay on the IRS’s good side. So, getting a handle on your business expenses is key to boosting your profits and keeping your venture running smoothly.

If you drive for work, mileage expenses are super important for self-employed individuals and small business owners because they can lead to nice tax savings. If you use your vehicle for business like meeting clients, running errands, or traveling to job sites you can deduct those miles when you file your taxes. Keeping track of your mileage throughout the year not only helps reduce your taxable income but also makes it easier to manage your overall expenses. So, whether you’re commuting or hitting the road for work, logging those miles can really pay off. For 2024, the standard mileage deduction rate is 67 cents per mile, which can really add up! You can keep up with the mileage rates here.

Deducting your phone expenses can be a great way to save some money come tax time. Since you likely use your phone for business calls, emails, and even managing schedules, a portion of your phone bill can be written off.

To get started, just figure out what percentage of your phone usage is for business versus personal use. If, for example, you use your phone 70% for work, you can deduct that same percentage of your monthly bill. It’s a good idea to keep records, like your phone bills and any notes on your usage, to support your deductions if the IRS comes knocking.

Also, if you bought your phone specifically for business, you can even deduct the cost of the phone itself, either all at once or through depreciation. Just remember to keep everything documented, and you’ll be able to enjoy those savings.

If you run a business from home, you might be eligible for some great home office deductions, which can help lower your taxable income.

To qualify, you need to use a specific part of your home exclusively for your business. This could be a dedicated office space, a workshop, or even a corner of a room. Note that this deduction is limited to your self-employment income, so if you have self-employment net income of $500, your home office deduction is limited to that amount.

There are two methods for calculating your home office deduction: the regular method and the simplified method.

No matter which method you choose, keeping accurate records is essential. Save your receipts and note how you calculate your deductions. Plus, if you have other business-related expenses—like office supplies or equipment—those can often be deducted too. Overall, taking advantage of home business deductions can really help you save on taxes while supporting your entrepreneurial journey!

The Qualified Business Income (QBI) deduction is a fantastic benefit for certain self-employed individuals and small business owners, allowing you to deduct up to 20% of your qualified business income from your taxes. This can lead to significant savings!

To qualify, your business must be a pass-through entity, like a sole proprietorship, or LLC. While the deduction is designed to support small businesses, there are some limits based on your income and the type of business you operate. Essentially, QBI focuses on income from qualified businesses based in the United States but leaves out certain types of passive or investment income, but there are some exclusions so be sure to keep up with the latest IRS tax updates.

For 2024, if your taxable income is below $191,950 (or $383,900 for joint filers), you can generally take the full 20% deduction without restrictions if your business is qualified. However, if your income exceeds these thresholds, the deduction may be limited, especially for specified service trades or businesses (SSTBs) like healthcare, law, or consulting. These businesses face stricter rules because their primary asset is often the reputation or skill of the owner or employees. For those in these fields, the deduction phases out completely once your income reaches $241,950 (or $483,900 for joint filers).

Keeping good records and understanding your income is crucial to making the most of the QBI deduction. So, if you’re running your own business, definitely look into how this deduction can help you save on taxes during tax season!

Estimated taxes are basically payments you make to the IRS on income that isn’t automatically taxed, like self-employment income, interest, or rental income. Unlike regular employees who have taxes taken out of their paychecks, if you’re self-employed or have variable income, you need to estimate how much you owe and pay it in quarterly installments for it to be considered paid on time when you file your taxes.

These payments are usually due in April, June, September, and January. To figure out how much to pay, you can use IRS Form 1040-ES, which helps you estimate your tax liability based on your expected income and deductions. Staying on top of your estimated taxes is important because it helps you avoid any penalties or interest later on. So, if you’re running your own business, make sure to keep an eye on those quarterly payments to keep things running smoothly!

This content is provided for informational purposes only and should not be construed as tax, legal, financial, accounting, or other advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need advice specific to you.

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