How to Prepare a Self Employment Income Tax Return

Calculating self-employment income tax.

Before you start your federal or state tax returns, you must calculate your self-employment tax. Income tax returns that have self-employed income are subject to Social Security and Medicare taxes, as well as any federal and state tax if you have a tax liability after calculating deductions, credits and payments. It is important to calculate the tax correctly or you could pay more in self-employment tax than you need to pay.

Things You'll Need

• Schedule C Profit and Loss
• Schedule SE Self Employment Tax
• Income
• Expenses
• Form 1040

Instructions

1. Complete a Schedule C Profit and Loss report. Before you claim all of your income on your 1040 form, you must find the profit or loss of your business. On the Schedule C, you claim your expenses that you paid to run the business. You cannot claim personal expenses. You must have receipts for the expenses that you claim.

2. Enter the profit from line 31 of Schedule C if more than $400 or the loss from line 32 of Schedule C on line 12 of your 1040 form. Enter the amount from line 31 or line 32 of Schedule C on line 2 of Schedule SE to calculate your self-employment tax. Note: If you have a loss, use parentheses to note a loss. For example, $534 profit is entered as 534.00 and a loss of $534 is entered as ($534.00).

3. Calculate your self-employment tax on Schedule SE if you have a profit of more than $400. Make any additions to lines 1a and 1b. Add lines 1a, 1b and 2 together and enter the total on line 3. On line 4, you will multiply the total on line 3 by .9235. If the net earnings are less than $400, you don't need to continue or file Schedule SE. You have no self-employment tax liability. If line 4 is more than $400, continue to line 5.

4. Multiply line 4 of Schedule SE by .153 if line 4 is at or less than $106,800. Multiply line 4 by .029 if line 4 is more than $106,800. Enter the total on line 5 and on line 56 of the 1040 form. Multiply line 5 by .50 and enter this total on line 6 and line 27 of the 1040 form.

5. Finish your 1040 form as you normally would. The entries that you have made from the Schedule SE will help you determine the final calculations for your 1040 tax liability. To complete your state tax return, you use the adjusted gross income from the 1040 form. You do not pay self-employment tax on the state return, but you may have a state tax liability.

References

• Schedule SE Self-Employment Tax
• Schedule C Profit and Loss From Business
• IRS: 1040 Form