Self-Employed? Here’s What to Know for Tax Time

Being self-employed comes with its fair share of perks: added flexibility, control over your work-life balance, and the opportunity to pursue a passion or carve out a unique career. But it also comes with added responsibility—especially when it comes time to file your taxes.

Without an employer to withhold taxes on your behalf, you are responsible for managing your own tax obligations, which can sometimes feel like an overwhelming task! However, with a little preparation and knowledge, you can make the process more manageable, providing peace of mind come tax time. 

Here are some tips to navigate tax season if you’re self-employed.

First: What Does “Self-employed” Actually Mean?

The category of self-employment covers a fairly wide range of circumstances. The IRS defines a self-employed person as someone who works for themselves and is not classified as an employee of a company. This includes people who:

• Operate a business: Sole proprietors, independent contractors, and freelancers who provide goods or services in exchange for payment are considered self-employed.
• Own and manage a business: Partners in a partnership, members of an LLC (Limited Liability Company), or owners of S-corporations and corporations may also be classified as self-employed.
• Freelancers and gig workers: If you work on a contract basis—such as gig workers, freelancers, or consultants—you're likely considered self-employed.

Even if you're working part-time or on a temporary basis, if you receive income directly from clients or customers and do not have taxes withheld from your paycheck (as would happen with an employee), you are likely considered self-employed*. This classifies you as a 1099 worker, and this is reflected on the tax forms you receive and fill out each year.

*If you're unsure whether your specific situation qualifies, it’s always a good idea to consult with a tax professional.

Understand What Forms You’ll Receive & Fill Out

What You’ll Get 

If you earned $600 or more from a single client during the year, your client will likely send you a Form 1099-NEC. You may also get a Form 1099-K if you’re a small business owner (like a sole proprietor, for example) and used a third-party platform to collect payments from customers in the previous year. 

The info on your 1099 form(s) will help you file your taxes, so be sure to keep it stored in a safe place!

What You’ll File

Form 1040 (U.S. Individual Income Tax Return)

• What it is: This is the main tax form that all U.S. taxpayers use to file their income tax return. 
• What it’s for: This form is for reporting your total income from all sources; as an independent contractor, this form is used along with Schedule C and Schedule SE forms, detailed below.

Schedule C (Profit or Loss from Business)

• What it is: This form is used to report the income and expenses related to your freelance or contracting work.
• What it’s for: This form is for reporting your gross income and deducting business-related expenses (e.g., office supplies, mileage, etc.) to calculate your net profit or loss. This net income is then used to calculate your taxes.

Schedule SE (Self-Employment Tax)

• What it is: This form calculates the self-employment tax you owe, which covers Social Security and Medicare taxes.
• What it’s for: Schedule SE helps to calculate the self-employment tax that you owe.  Self-employed workers need to pay both the employer and employee portions of Social Security and Medicare taxes, which is roughly 15.3% of your net income (after deductions). 

Psst: Check out our full guide on preparing for tax season with peace of mind.

Track Your Income & Expenses Throughout the Year

Because you don’t have an employer withholding taxes from your paycheck, you become responsible for tracking your income and expenses. Detailed record keeping is crucial to both file your taxes and to potentially make the most of any deductions available to you. Keep detailed track of your income and all business-related expenses, including:

• Office supplies and equipment
• Travel and transportation (mileage, gas, parking, etc.)
• Meals and entertainment related to business meetings
• Marketing and advertising costs
• Software or subscription fees used for your work
• Professional services (like accounting or legal fees)

Using a digital tool like QuickBooks or a simple spreadsheet to organize your financial records and receipts is one way to go about this. 

Another way to do this? By keeping all of your business related expenses and earnings separate, like on your Branch Business Card. You can also take advantage of time-saving resources like the CSV download feature within your Branch App; it allows you to download your monthly statements as CSV files, which is typically the preferred format to upload for tax filing.

Make the Most of Deductions

One reason to keep such detailed records is to make the most of any potential deductions! As a self-employed worker or small business owner, It's not just about what you owe the IRS—here's your chance to get something back for all of your hard earned work. Writing off business expenses could be an extra boost you need this quarter to help cover your bills or reinvest in your business. Here’s a few of the most common deductions:‍

‍Business use of a car

Great news for folks in last mile delivery or in trucking: if you bought a vehicle for your business and are actively using it for your business, then you may be eligible for this tax deduction. Just make sure to track your mileage at the beginning and end of each year. 

Health insurance premium deduction

One of the downsides to being self-employed is paying out of pocket for healthcare premiums. However, there’s a silver lining—you may be able to deduct your health and dental premiums as a business expense. 

‍Business insurance deduction

Like most business owners, you’ve invested time and money into everything that makes your business operate. If you pay a premium for fire, theft, or any kind of insurance, you may be eligible to claim those expenses, too.

Plan for Estimated Quarterly Payments—Or Set Aside Funds Throughout the Year

One of the things you want to avoid as a self-employed worker is being surprised at the amount you have to pay when you file. But don’t worry: there are a few different strategies that can help you avoid this.

One option is to make estimated tax payments throughout the year (due in April, June, September, and January) instead of paying one lump sum during tax season. This is referred to as quarterly estimated payments; some people prefer this method to help them budget all year round. Many tax tools offer assistance navigating this process to make it easier to plan your payments.

If you haven’t made quarterly payments throughout the year, you should plan on owing more at the end of the year. One way to easily set aside funds for tax time? Create a new Savings Goal within your Branch account. This allows you to set aside funds for a specific financial goal, such as your taxes.

Making the Most of Your Self-Employment 

Being self-employed may offer more control over your earnings, but it can also come with increased financial responsibility, especially when it comes to your taxes. By staying organized, understanding your obligations, and taking advantage of available deductions, you may be able to keep more of your hard-earned money. 

Remember, tax laws can be complex, so don’t hesitate to consult with a tax professional if you’re unsure about the best approach for your situation. With the right planning and strategies, you can take full advantage of the tax benefits available to self-employed workers, freeing up more resources to reinvest in your business and your future.

Want a chance to save $5 off your tax return when you file with TurboTax? Learn more here!

Disclaimer: The materials on branchapp.com and my.branchapp.com are for informational purposes only and subject to our terms of use and privacy policy. Neither Branch nor this website provide legal, financial, tax or insurance advice. We work hard to ensure the information here is accurate, but we recommend you contact a professional for any legal, financial, tax or insurance advice.