As a self-employed person, you’re used to taking on the necessary challenges of maintaining your business. There are few roadmaps for business success, but you have resources at your disposal for keeping on track with your tax obligations.
In addition to state and federal income tax, self-employed individuals are also responsible for paying self-employment tax and making quarterly payments. Follow a few tips to keep yourself on track with self-employed tax obligations.
Determine self-employment status
If your net earnings from self-employment exceed $400, you are responsible for paying self-employment tax. In addition to typical self-employed persons, some church employees and in-home caregivers may need to follow self-employment tax expectations.
Know your payment schedule
The IRS requires some self-employed individuals to make quarterly payments on the estimated tax as a means to pay Social Security and Medicare taxes. To know if you qualify for this payment schedule, use the worksheet from Form 1040-ES and check the payment schedule provided.
According to the worksheet, you may either pay all of the estimated tax by one due date – 2018’s deadline was April 17 – or by four deadlines throughout the year.
Keep tax information somewhere safe
There isn’t one hard-and-fast rule for maintaining tax records. If you prefer hard copies, keep a filing cabinet in the home office dedicated to relevant tax information. For those wanting more security, opting for hard drives and other digital methods may be a preferable option.
You can scan any hard copies to maintain digital copies instead, but the IRS period of limitations will still apply to those documents in the same way. The typical time period is three years for most documentation as that’s the service’s window to decide to audit a tax filing.
Hold on to relevant tax records
While you should keep relevant tax documentation for three years in most cases, there may be an instance where that timeline extends. The IRS could have up to six years to decide on an audit if you did not report the full value of your income. This may occur if you under-report by 25 percent of your income’s actual value.
There is no time limitation on tax fraud-related audits. If the IRS begins an audit into potential fraudulent filings, you may need to produce documentation dating back any number of years beyond the typical time frame.