DCWP - Self-Employed Info Sheet

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Self-Employed Tax Preparation Information Sheet


Self-Employed Tax Preparation Information Sheet

This info sheet offers answers to frequently asked questions about filing taxes as a self-employed worker.

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Click a topic, or press the enter key on a topic, to reveal its answer.

What are my most important responsibilities as a self-employed worker?

There are some things that every self-employed professional should do, regardless of what industry you are working in. Doing these three things will set you up for success:

1. Track Income and Expenses

It is very important to keep good records. This will not only help you during tax season, but also help you better understand the overall health of your business. A good rule to follow is this: whenever you get paid, make a purchase, or pay an expense, make sure the amount is logged somewhere AND you have proof. Proof can be an invoice, receipt, purchase order, 1099 form, or any official document that shows that the transaction actually took place. If you ever get audited, you will need to show proof – make sure you are ready!

Follow the table below as a guide:

Every time I get paid, I should record:

Invoice / Proof of payment

Amount of each payment

Complete address or location where work or service was completed

Name of person or business that paid me

The Tax Identification number of any business who paid me. If paid by an individual instead, the best practice is to request their Social Security Number (or other taxpayer identification number). If they are unwilling to share, just document the attempt.

Every time I pay someone else, I should record:

Receipt / Purchase Order

Amount

Means of payment

Name of person or business I am paying

Description

Many self-employed individuals use some kind of software or app to track these transactions automatically. If you use bookkeeping software, it is good practice to check your accounts regularly to make sure your transactions are being logged correctly. If you do not use any software, you can download NYC DCWP’s Free Excel Income & Expense Tracker. You can also download a printable version of the income and expense tracker.

2. Pay Quarterly Estimated Taxes

Because you don’t have an employer that withholds taxes from every paycheck, you'll need to check the IRS's threshold for self-employed income to see if you will need to pay taxes on your own. Taxes are due once every quarter, paid to the IRS and New York State. If this is your first year ever earning self-employed income, you will estimate the amount of money you owe. If you’ve done this before, your quarterly payments will be based on the amount you earned as a self-employed worker the previous year.

Speak to an NYC Free Tax Prep provider or attend a free workshop to ask questions about how to pay your quarterly estimated taxes.

Below are the due dates for your estimated payments, which you can pay online or by mail. Keep in mind that these dates may change year to year.

Quarter 1 (January 1 - March 31) is due April 15

Quarter 2 (April 1 - May 31) is due June 15

Quarter 3 (June 1 - August 31) is due September 15

Quarter 4 (September 1 - December 31) is due January 15 of the following year

If you do not pay taxes quarterly, you will have to pay a large lump sum at the end of the tax year, as well as a penalty.

3. File a Year-End Tax Return

Taxes are due every year during the middle of April. Tax Day is usually April 15th, unless this date falls on a weekend or holiday. Before that deadline, you will need to file a tax return. This is when you tell the IRS how much money you made and spent that tax year. If the amount of taxes you paid quarterly was higher than what you actually owe, you will get money back from the government as a refund. If the amount you paid quarterly was lower than what you owe, then you will need to pay the balance by the end of the tax year to avoid penalties and interest.

The specific tax forms you will need vary based on you, the details of your work, and your family. If you make an appointment with an NYC Free Tax Prep provider, a trained tax professional will review your information and file your return for you. You can also attend a free workshop for more information.

You may also qualify to file for free online if your Adjusted Gross Income is below a certain threshold (i.e., you make less than a certain amount). You can visit the IRS Website to learn about this threshold and your options.

These are some of the federal tax forms relevant to self-employed people.

Document
Description

☐ Form 1040

This is your main tax return form. You will see that many of the boxes require you to attach other forms depending on what kind of work you do, what your expenses and deductions are, whether you have dependents, and for other things that are not related to self-employment at all, like your house, investments, etc. NYC Free Tax Prep preparers and IRS-approved online E-filing services can guide you through filing these forms.

☐ Schedule C

Schedule C is where you report profit and loss from a sole proprietorship. Depending on the kinds of expenses and deductions you claim, you will have to fill out additional linked forms and attach them to your Schedule C. NYC Free Tax Prep preparers and IRS-approved online E-filing services can guide you through filing these forms.

☐ Schedule SE

This is where you report self-employment taxes. Because these self-employment taxes are considered “additional taxes,” the number you list will carry over to Schedule 2. Because you can deduct part of what you paid in self-employment taxes, which counts as an adjustment in income, you will also carry those numbers over to Schedule 1. Like Schedule C and Schedule SE, Schedules 1 and 2 are attachments that you will submit along with form 1040. NYC Free Tax Prep preparers and IRS-approved online E-filing services can guide you through filing these forms.

In addition to completing your federal tax return, you will need to file a New York state and NYC tax return as well. The documents and records that you will need to keep for your federal return will also help you file in New York state and NYC.

Let's talk about deductions. What can I take as a business expense?

First of all, let’s be clear on what “taking as a business expense” means. It doesn’t mean that you don’t need to pay for anything: when you take something as an expense, you take that business-related cost and subtract it from your business’s total taxable income. Examples of some common expenses include:

Supplies and materials

Some business travel and meals

Health insurance premiums

Technology and software

Phone and internet costs

Your car, if you use it for your business

Home office

Business-related rental spaces, like a studio or a prep kitchen

You may be eligible for other deductions and credits based on your personal details. Talk to an NYC Free Tax Prep provider or use an E-filing software to help you make sure you maximize your deductions and refund.

Business Use Percentage

Sometimes you will spend money on supplies, materials, technology, or other things you use for both your business and your personal life. It is important to know that you can only deduct these expenses as a percentage of business use. For example, if you use your cell phone for work 50% of the time and for personal reasons the other 50%, you can only deduct 50% of the associated costs. It is best practice to track the costs for the entire year and determine the business percentage as you go.

What is some key terminology I should know?

As you file your taxes and work with tax professionals, these are some common terms you might come across:

Business entity: Any organization formed to conduct business. Most businesses operate under as of these four types: sole proprietorships, partnerships, corporations, or limited liability companies (LLCs).

Sole proprietorship: a business with only one owner who pays personal income tax on their profits. You're automatically considered a sole proprietorship if you do business activities but don't register as any other kind of business.

Partnership: a form of business where two or more people share ownership and responsibility for managing the company and the income or losses the business makes.

Corporations: this type of business separates the organization from its owners and therefore requires more recordkeeping and reporting than other businesses.

Limited liability company (LLC): a business type that separates your personal assets (like a car or house) from business assets.

Employer Identification Number (EIN): a number that the IRS uses to identify a business (also known as a Federal Tax Identification Number), much like a social security number is used to identify a person. EINs may be required if you have employees and have a certain type of business.

Payment service provider (PSP): a third-party company that provides payment services to businesses that accept online payment methods, such as credit cards, debit cards, e-wallets, cash cards, bank transfers, and much more. Examples include Amazon Pay, PayPal, Stripe, and Square.

For more information from the New York State Department of Taxation and Finance, you can visit the state's online financial education program.

This page was updated on 10/2023.