Self-employment means that a person is working for him or herself alone and not for a company or another person. It means that a self-employed individual’s livelihood is directly coming from his own business or trade and not from being an employee of another individual. With the ever increasing popularity of online business, there are now many former employees who preferred to create their own online business, becoming self-employed individuals.
And just like any businesses, the business of a self-employed individual must also be reported, associated with his own income report. But how do self-employed persons report their income?
Sole proprietors, independent persons and contractors and self-employed individuals with net earnings starting from $400 and above are mandated to pay their self-employment tax through PDF of Schedule SE which is attached to Form 1040 US Individual Income Tax Return. Church employees who receive an income starting from $108.28 and above but are not receiving Form W-2 for their earnings are also required to pay their self-employment tax with the same requirements mentioned.
Self-employed individuals and independent contractors are mandated to report expenses and income on C-EZ (PDF) or Schedule C (PDF). Your net profit as a self employed may also be subjected to SE tax. You must file an accomplished Schedule SE affixed to Form 1040, US Individual Income Tax Return.
If you are a member of a certain partnership carrying business or trade or of Limited Liability Company which opts to be treated as a kind of partnership, your share of that business’s loss and income must be included in your self-employment net earnings. Filing of this is just the same with the first two mentioned.
In case you have some employees, you will be paying employment taxes such as Social Security, Medicare and Federal income taxes. In the event that you are manufacturing or selling specific products, operating businesses of various kinds, using equipments, products or facilities or receiving payment for services, you will have to pay excise taxes.
Being self-employed does not mean that you are exempted from paying your citizen dues. These taxes are used for the benefit of not only you but other citizens of your country as well.