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Making a mistake with the IRS one time is probably one too many already, however, if you wish to avoid any further mistakes, you need to first understand what tax category you fall under before you can identify what your obligations are. Let’s take self-employed individuals for instance. The IRS recognizes someone as self-employed if they:
A self-employed worker is required to pay SE tax, which consists of Social Security and Medicare tax as well as income tax. It is important that anyone filing as self-employed only files deductions that pertain to their line of work and nothing more. Sometimes, the IRS will audit an individual who claims they use their entire home to run their business and this serves as a red flag to the department which might prompt them to audit you.
If you want to determine whether you are subject to self-employment tax, you are going to need to figure out what your net profit or net loss is from your business. The IRS states that you can do this by subtracting your business expenses from your business income. In the event your expenses are less than your income, the difference would be your profit and would become income. Should your expenses be more than your income, the difference reflects your net loss. Usually, you are able to deduct your loss from your gross income on Form 1040 but some situations limit you in the loss you can report.
Most individuals who are self-employed are also required to file an annual return like all other taxpayers. Some are also required to pay an estimated tax quarterly. If you aren’t sure as to what your tax obligations are, you can always consult with a tax lawyer in SC or call the IRS and they should be able to inform you of this.
In the event the IRS has sent you a bill, don’t put the matter off as this will only make the matter worse.
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