Self-Employment Income - Do I Need to File Taxes?

Yes, you are not only allowed but required to file taxes on self-employment income. Back when I started my consulting business, I had the same question. The IRS considers you self-employed if you're carrying on a trade or business as a sole proprietor or independent contractor. The key threshold to remember is $400 - if your net self-employment income (that's your profit after deducting business expenses) exceeds $400, you must file a tax return and pay self-employment tax, which covers Social Security and Medicare. This is regardless of whether you have other income or need to file a regular tax return for other reasons.

You absolutely need to file. I've been running my own business for 5 years, and self-employment taxes are brutal. You'll need Schedule C to report your business income and expenses, and Schedule SE to calculate self-employment tax. The IRS doesn't care if you're "formal" or not - if you're making money from self-employment activities, they want their cut. And don't forget about quarterly estimated tax payments - I got hit with underpayment penalties my first year because nobody told me about those. Track EVERYTHING - mileage, home office space, supplies, shipping costs. Every legitimate business expense reduces your taxable income.

Yes, you definitely need to file taxes for self-employment income. Here's what you need to know: • Self-employment tax applies when net earnings exceed $400 • You'll file Schedule C with your 1040 to report business income/expenses • You'll also need Schedule SE to calculate self-employment tax (15.3% for Social Security/Medicare) • Keep detailed records of all business expenses to maximize deductions • Consider using accounting software to track everything If you need help understanding your specific tax obligations, I'd recommend calling the IRS directly. I used to spend hours on hold until I discovered Claimyr (https://claimyr.com). They'll call the IRS for you and connect you when an agent is available - saved me literally hours of hold time when I had questions about my self-employment taxes last year.

Just a word of caution - I would strongly advise against ignoring self-employment tax obligations. The IRS is generally quite thorough about matching income reported on 1099 forms against tax returns. If you received payments through platforms like PayPal, Venmo, or credit card processors, they might issue a 1099-K if you exceeded certain thresholds. Missing these filings could potentially lead to notices, audits, and possibly penalties and interest that would likely cost much more than simply filing correctly in the first place.

Wait, so if I'm understanding this right, we have to pay taxes QUARTERLY? I've been doing freelance graphic design for almost 2 years and have only been filing annually. Am I going to be in trouble? How do you even calculate how much to pay each quarter when your income varies so much month to month? This seems way more complicated than I realized!

You should look into filing as an S-Corp if your business continues to grow. I switched from sole proprietor to S-Corp once I was consistently making over $40K in profit, and it saved me thousands in self-employment taxes. You pay yourself a reasonable salary (which is subject to FICA taxes) and can take the rest as distributions (which aren't). There are additional costs like incorporation fees and more complex tax filings, but the tax savings can be substantial once you reach a certain income level.

Connor, based on your numbers ($6,500 in sales), you'll definitely need to file taxes if your net profit exceeds $400. The key word here is "net" - so you'll subtract all your legitimate business expenses (materials, workspace costs, etc.) from that $6,500. Here's what you'll need to do: • File Schedule C (Profit or Loss from Business) with your Form 1040 • If your net profit is over $400, also file Schedule SE for self-employment tax • Keep meticulous records of ALL business expenses - they're your friend for reducing taxable income • Consider setting up a separate business bank account to make tracking easier going forward Don't worry about not being formally registered - the IRS considers you self-employed regardless of business structure. Start gathering those receipts now and consider using accounting software like QuickBooks or even a simple spreadsheet to track everything. Better to be over-prepared than caught off guard!