Working as an independent contractor or owner of your own business can offer great opportunities for professional growth. You can set your own hours and have full control of all aspects of the business. There are many legal responsibilities you need to take care of. You may also need to apply for a license depending on your industry.
You might be asked to prove your income for a variety reason. This could be required when you apply to for insurance, a Self employed home loan, and/or taxes. It is important that you keep track of all key business information by creating a filing system.
Self-employed individuals must pay taxes on their earnings. You can pay this tax either through your business or directly to the IRS. Individuals who are self-employed may also be responsible to pay Medicare and Social Security taxes. Schedule SE will be required to be included in your federal income tax return. You may also be required to pay estimated tax payments for your income. To calculate estimated taxes, you can use Form 1040ES. It contains blank vouchers that can be used for the Electronic Federal Tax Payment System. If your estimated tax payments are too small, you may owe additional tax.
You may be asked to show proof of earnings to the IRS. This could include bank statements, official invoices, or audited profit-and-loss statements. You may also be required by law to provide a certified copy of your tax return or Form 1099.
The IRS defines self-employed as individuals who own a trade or business. These individuals may be members of a limited liability company, sole proprietors, or a partnership. They may also be self-employed tradespeople or insurance agents.
You may also be asked for registration with the Information Commissioner’s Office. This free government service provides information on legal responsibilities to self-employed people. If you use electronic records in the business, you may need to register.
If you are a self employed individual, you may be able to get health insurance through the individual Health Insurance Marketplace. This program offers flexible health coverage. However, you will need to estimate your net income for the year to qualify. You will also need an estimate of how much you will owe on Social Security and Medicare taxes. The government also has Business Link centres that offer free advice.