SELF-EMPLOYED PERSONS

  • 1040ES -Estimated Taxes
  • IRS Tax Rates & Tax Tables
  • Mileage Deduction
  • IRA
  • Self Employed Taxes
  • IRS 1031 Exchange Rules

 

1040ES- Estimated Tax for Individuals

 

Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.). In addition, if you do not elect voluntary withholding, you should make estimated tax payments on other taxable income, such as unemployment compensation and the taxable part of your social security benefits.

  • The estimated tax rules apply to:

U.S. citizens and resident aliens;Residents of Puerto Rico, the U.S. Virgin Islands, Guam, the Commonwealth of the Northern MarianaIslands, and American Samoa; andNonresident aliens (use Form 1040-ES (NR)).

You can pay your estimated tax four times a year, based on the IRS dates specified for payment, or each month. At: Electronic Payment Options Home Page

Estimated taxes are tax payments made to the IRS on income you have that is not subject to withholding. People who are self-employed pay estimated taxes, as do those with large stock dividends, interest or assets. If you are a salaried employee and you don't have enough tax withheld, you may want to pay estimated taxes to avoid paying a penalty.

To pay estimated taxes, you need to figure out how much your adjusted gross income will be for the year. Take into account your taxable income, deductions, taxes and credits.


IRS TaxRates & Tax Tables 

2011 Instruction 1040-TAX TABLE

 

 

Mileage Deduction



The Internal Revenue Service today issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

 

  • 56.5 cents per mile for business miles driven.
  • 24 cents per mile driven for medical or moving purposes.
  • 14 cents per mile driven in service of charitable organizations.

 

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate. The medical and moving rate is also up 1 cent per mile from the 2012 rate.

 

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

 

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

 

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.



IRA

How Can a Traditional IRA Be Opened?

You can open different kinds of IRAs with a variety of organizations. You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. You can also open an IRA through your stockbroker. Any IRA must meet Internal Revenue Code requirements. The requirements for the various arrangements are discussed below.

Who Can Open a Traditional IRA?

You can open and make contributions to a traditional IRA if:

  • You (or, if you file a joint return, your spouse) received taxable compensation during the year, and
  • You were not age 70½ by the end of the year.

Spousal IRA Limit

For 2011, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts:

  1. $5,000 ($6,000 if you are age 50 or older), or
  2. The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts.
  • Your spouse's IRA contribution for the year to a traditional IRA.
  • Any contributions for the year to a Roth IRA on behalf of your spouse.

This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $10,000 ($11,000 if only one of you is age 50 or older or $12,000 if both of you are age 50 or older).

Rollovers

Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute to another retirement plan. The contribution to the second retirement plan is called a "rollover contribution."

Note.

An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan.

Kinds of rollovers to a traditional IRA. You can roll over amounts from the following plans into a traditional IRA:

  • A traditional IRA,
  • An employer's qualified retirement plan for its employees,
  • A deferred compensation plan of a state or local government (section 457 plan), or
  • A tax-sheltered annuity plan (section 403 plan).

Table 1-4. Rollover Chart

The following chart indicates the rollovers that are permitted between various types of plans.

 

Self Employed Taxes


What Can I Deduct?

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

It is important to separate business expenses from the following expenses:

  • The expenses used to figure the cost of goods sold.
  • Capital Expenses, and
  • Personal Expenses.

Cost of Goods Sold

If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Some of your expenses may be included in figuring the cost of goods sold. Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense.

The following are types of expenses that go into figuring the cost of goods sold.

  • The cost of products or raw materials, including freight
  • Storage

Capital Expenses

You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business. There are, in general, three types of costs you capitalize.

  • Business start-up cost (See the note below)
  • Business assets
  • Improvements

Business Use of Your Home

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.

Business Use of Your Car

If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.

Other Types of Business Expenses:

  • Employees' Pay - You can generally deduct the pay you give your employees for the services they perform for your business.
  • Retirement Plans - Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees' retirement.
  • Rent Expense - Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
  • Interest - Business interest expense is an amount charged for the use of money you borrowed for business activities.
  • Taxes - You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.
  • Insurance - Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.