Things the IRS wants you to know if you are self employed

Here are six things the IRS wants you to know about self-employment:

1. Self-employment can include work in addition to your regular
   full-time business activities, such as part-time work you do at home or in
   addition to your regular job.
2. If you are self-employed you generally have to pay Self-employment Tax.
   Self-employment tax is a social security and Medicare tax primarily for
   individuals who work for themselves. It is similar to the social security and
   Medicare taxes withheld from the pay of most wage earners. You figure SE tax
   yourself using a Form 1040 Schedule SE. Also, you can deduct half of your
   self-employment tax in figuring your adjusted gross income.
3. If you are self-employed you generally have to make estimated tax payments.
   This applies even if you also have a full-time or part-time job and your
   employer withholds taxes from your wages. Estimated tax is the method used to
   pay tax on income that is not subject to withholding. If you don’t make
   quarterly payments you may be penalized for underpayment at the end of the tax
   year.
4. You can deduct the costs of running your business. These costs are known as
   business expenses. These are costs you do not have to capitalize or include in
   the cost of goods sold but can deduct in the current year.
5. To be deductible, a business expense must be both ordinary and necessary. An
   ordinary expense is one that is common and accepted in your field of business. A
   necessary expense is one that is helpful and appropriate for your business. An
   expense does not have to be indispensable to be considered necessary. In
   addition, you must be able to substantiate your expense.

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