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If you're self-employed, you'll use IRS Schedule C, Profit or Loss from Business to report all your business activity. Your gross income includes all payments you receive from customers for services you provide. Include the amounts from any 1099s that customers send you at the end of the tax year. You'll also use Schedule C to categorize and claim business expenses you incur in the operation of your self-employment activities.
Net Income or Loss
The first step you'll need to take to determine if you owe self-employment tax is to figure your net income. From the gross income you report on Schedule C, subtract your expense total. The result is your net income or loss. As of January 2011, if your net profit is more than $400, use IRS Schedule SE to figure your self-employment
tax. If your net profit is negative (a loss), you do not have any self-employment income and you do not owe any tax.
Self-employment tax is figured on IRS Schedule SE. When you file this form, the IRS shares the information with the Social Security Administration (SSA). The SSA uses information reported on your SE form to track your lifetime earnings and calculate your future Social Security retirement or disability benefits.
Estimated Tax Deposits
As of January 2011, if you owe more than $1,000 in self-employment tax in any tax year, you may be required to make estimated tax deposits towards your future tax liability. As a self-employed individual, you do not taxes withheld from your pay like W-2 wage employees. Your estimated tax deposits replace the tax credits that you would receive if you were not self-employed.