Top Six Tax Tips for the Self-Employed

When you are self-employed, it typically means you work for yourself, as an independent contractor, or own your own business. Here are six key points the IRS would like you to know about self-employment and self-employment taxes:

1. Self-employment income can include pay that you receive for part-time work you do out of your home. This could include income you earn in addition to your regular job.

2. Self-employed individuals file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040.

3. If you are self-employed, you generally have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. You figure this tax using Schedule SE, Self-Employment Tax.

4. If you are self-employed you may have to make estimated tax payments. People typically make estimated tax payments to pay taxes on income that is not subject to withholding. If you do not make estimated tax payments, you may have to pay a penalty when you file your income tax return. The underpayment of estimated tax penalty applies if you do not pay enough taxes during the year.

5. When you file your tax return, you can deduct some business expenses for the costs you paid to run your trade or business. You can deduct most business expenses in full, but some costs must be ’capitalized.’ This means you can deduct a portion of the expense each year over a period of years.

6. You may deduct only the costs that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.

For more information, visit the Small Business and Self-Employed Tax Center on the IRS website. There are three IRS publications that will also help you. See Publications 334, Tax Guide for Small Business; 535, Business Expenses and 505, Tax Withholding and Estimated Tax. All tax forms and publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

• Small Business and Self-Employed Tax Center
• Publication 334, Tax Guide for Small Business
• Publication 535, Business Expenses
• Publication 505, Tax Withholding and Estimated Tax
• Schedule C, Profit or Loss from Business
• Schedule C-EZ, Net Profit from Business
• Schedule SE, Self-Employment Tax
• Form 1040-ES, Estimated Tax for Individuals

IRS YouTube Videos:

• Estimated Tax Payments – English | Spanish | ASL

Need more time to file your federal income taxes? Consider an extension!

These days, life can really be hectic and something is bound to be forgotten in the shuffle, even filing your income tax return. If you can’t get it completed by April 15, you can file for an automatic extension of time to file to give yourself something very precious — time.

Tax-filing extensions are available if you need more time to finish your returns. Remember, this is an extension of time to file, not an extension of time to pay. However, taxpayers who are having trouble paying what they owe usually qualify for payment plans and other relief.

Either way, you’ll avoid stiff penalties if you file either a regular income tax return or a request for a tax-filing extension by this year’s April 15 deadline. You should file, even if you can’t pay the full amount due. Here are further details on the options available to file an extension.

More Time to File:

If you haven’t finished filling out your return, the fastest, easiest and free way to get an
automatic six-month extension is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on Form 4868.

Filing this form gives you until Oct. 15 to file a return. To get the extension, you must estimate your tax liability on this form and should also pay any amount due.
By properly filing this form, you’ll avoid the late-filing penalty, normally five percent per month based on the unpaid balance that applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.
Besides Free File, you can choose to request an extension through a paid tax preparer, using tax-preparation software or by filing a paper Form 4868, available on IRS.gov.
Details on all filing and payment options are on IRS.gov.

The American Opportunity Credit and the Lifetime Learning Credit may help you pay for the costs of higher education. If you pay tuition and fees for yourself, your spouse or your dependent you may qualify for these credits.

Here are some facts the IRS wants you to know about these important credits:

The American Opportunity Credit

• The AOTC is worth up to $2,500 per eligible student.
• The credit is available for the first four years of higher education at an eligible college, university or vocational school.
• The credit lowers your taxes and is partially refundable. This means you could get a refund of up to $1,000 even if you owe zero tax.
• An eligible student must be working toward a degree, certificate or other recognized credential.
• The student must be enrolled at least half time for at least one academic period that began during the year.
• You generally can claim the costs of tuition and required fees, books and other required course materials. Other expenses, such as room and board, do not qualify.

The Lifetime Learning Credit

• The credit is worth up to $2,000 per tax return per year. The yearly limit applies no matter how many students are eligible for the credit.
• The credit is nonrefundable. This means the amount you can claim is limited to the amount of tax you owe.
• The credit is available for all years of higher education. This includes courses taken to acquire or improve job skills.
• You can claim the costs of tuition and fees required for enrollment or attendance. This includes amounts you were required to pay to the institution for course-related books, supplies and equipment.

You cannot claim either of these credits if someone else claims you as a dependent on his or her tax return. Both credits are subject to income limitations and may be reduced or eliminated depending on your income.

Keep in mind that you can’t claim both credits for the same student in the same year. You may not claim both credits for the same expense. Parents or students claiming either credit should receive a Form 1098-T, Tuition Statement, from their educational institution. You should make sure it is complete and correct.

Find out more details about these credits and other college tax benefits in Publication 970, Tax Benefits for Education. You can get the booklet at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

• Publication 970, Tax Benefits for Education
• Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)

Giving to charity may make you feel good and help you lower your tax bill. The IRS offers these nine tips to help ensure your contributions pay off on your tax return.

1. If you want a tax deduction, you must donate to a qualified charitable organization. You cannot deduct contributions you make to either an individual, a political organization or a political candidate

2. You must file Form 1040 and itemize your deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must also file Form 8283, Noncash Charitable Contributions, with your tax return.

3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event or other goods and services.

4. Donations of stock or other non-cash property are usually valued at fair market value. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

5. Fair market value is generally the price at which someone can sell the property.

6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution. A telephone bill meets this requirement for text donations if it shows this same information.

7. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.

8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.

9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, see Publication 526, Charitable Contributions. For information about noncash contributions, see Publication 561, Determining the Value of Donated Property. Forms and publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

• Publication 526, Charitable Contributions
• Publication 561, Determining the Value of Donated Property
• Schedule A, Itemized Deductions
• Form 8283, Noncash Charitable Contributions

IRS YouTube Videos:

• Fair Market Value of Charitable Donations – English | Spanish | ASL