Video instructions and help with filling out and completing Where Form 8815 Employed

Instructions and Help about Where Form 8815 Employed

Welcome to self-employment this is lesson 2 and we are going to look at the income that you make if you are self-employed as well as the additional taxes that you might end up owing our objectives today are to understand what is self-employment income to understand and calculate self-employment tax and understand what tax forms are required to be used for self-employment income as well as the taxes associated with that so what are self-employed individuals these are individuals who are independent contractors they're not employees as somebody else so if you go out and you babysit for example you are a self-employed individual if you go around your neighborhood and you cut lawns for people shovel snow you're considered to be a self-employed individual there's obviously varying levels of self-employed individuals ranging from a babysitter all the way up to somebody who actually does run and owned a business and has their own employees we're a self-employment or self-employed income expenses that profit and taxes reported well we haven't looked at the form 1040 yet but if you have a business that's owned by just one person these are always reported on Form 1040 but first organized and set up on Schedule C if you have a business that has profit most likely you'll have to pay self-employment taxes for this business those are calculated and reported also on 1040 but they come over from a Schedule S II where they are organized and the tax is calculated when you work for somebody else as an employee you pay Medicare and Social Security your employer also pays Medicare and Social Security on you so whatever you pay your employer matches that when you have your own business you have to pay both portions and that's what Schedule se calculates for you so what are some examples of self-employment expenses when you have a business you keep track of your income but then you also get to keep track of all of your expenses those expenses deduct directly from your income to give you a net profit well some examples would be advertising you may have to advertise for your business you may have to drive around and have car and truck or travel expenses you might have separate insurance pay interest on loans that you have for equipment legal fees office expenses supplies you may even have to rent things so it's really important that if you do have your own business that you keep track of all the expenses that you incur related to that business because those expenses are directly deductible against the income if you think about how much tax you're going to have to pay you won't have to pay tax on your gross income you'll pay tax on your net income so your total income plus all your expenses how would a self-employed net profit impact overall income in taxes well self-employment profit ultimately increases the income that you have that subject to tax think of it as from a job the amount of income you have is taxed as usual self-employment loss however will decrease the income that subject to tax so if you have a loss but you have other forms of income the loss will end up knitting and decreasing the amount you have over all that you are taxed on the self-employment tax increases the total tax so you're taxed on your income but then remember again you also have to pay to self-employment taxes or I should say to Medicare and Social Security taxes your portion and then the employers portion which you incur now here's one thing the employer portion of the self-employment tax will actually flow to your schedule 10:40 and decrease the amount of income that subject to tax so say for example you made ten thousand dollars last year and your self-employment tax the employer portion was two thousand well that would deduct from the ten thousand to make only eight thousand dollars of your income taxable and we'll look at that in more detail soon here's an example we're going to use Nancy Ellis she's an interior designer she's an independent contractor which means she is self-employed she provides design services to two businesses printing corporation and environmental processes now when you provide service to somebody a lot of times they will issue you a form 1099 miscellaneous showing how much money they paid you over the year now they'll send you this form at the end of the year usually sometime at the end of January or February so each of these businesses did issue her a form 1099 you should still keep track of all your income but this helps you to remember more specifically so here's one of them from printing corporation notice on the bottom it says 1099 miscellaneous and then in box 7 it says non employee compensation remember she's not an employee for them she has her own business and this is what they paid her fifteen thousand two hundred and fifty the other company she worked for or not necessarily for but did business with his environmental processes and they paid her thirty thousand one hundred and fifteen here are Schedule C now look at how the schedule works you put the name of yourself your business title and the name of your business you can also put your social security number and then you'll have to look up a code in the instruction booklet that relates to what your principal business or profession is in her case its interior design and then typically we are on the cash method most people the other methods are a little bit more complicated and we won't be going into that here then there's some checkboxes did you materially participate well fit your own business usually that's a yes and then we come down to part one income this forty five thousand three hundred and sixty five is