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Tax Tips for Self-Employed Consultants
Independent work is popular. People who are independent workers are often referred to as “Direct Sellers” by the IRS because they often sell a product or service to people they know from personal connections or even networking events. Since Direct Sellers work for themselves, their tax filing rules are different from those who work a W-2 full-time corporate job. Follow these tips from ETax Service to learn about how to be prepared for potential tax auditing as a Direct Seller.
- File the Tax Return
Any income of $400 or more over one year must be reported. For example, people who only made $155 throughout a year will not owe any taxes. It is important to file because that is how people are issued tax refunds.
- File Business Income
Many independent workers make various kinds of income (product purchases, prices, commissions, gifts, and many more). Direct sellers often receive a Form 1099 if they made over $600 or invested more than $5,000 in inventory.
- Pay Self-Employment Taxes
The IRS requires the self-employed to pay their own taxes. This is because companies are not automatically deducting expenses such as Social Security, Medicare, and other income taxes. The tax rate for direct sellers is 15.3% of net earnings (12.4% for Social Security and 2.9% for Medicare).
- Understand Expenses You Can Deduct
A great way to lower your taxable income is by deducting business expenses. Self-employed workers can normally deduct various kinds of expenses. These expenses include home office, marketing, startup costs, inventory (value, not sales), and more.
- Separate Business and Hobby Incomes
Some people have a skill and do not intend to make an LLC or other business out of the skill. If you are providing a skill and are not concerned about money, you are considered a Hobbyist. Hobbyists still must report all income though no expenses may be deducted.
For more questions about tax rates for the self-employed, visit www.etaxservice.com to connect with our expert tax staff.
The US Flat Tax Revolution
One thing that divides the United States of America is the various tax rates. In other words, only some states have the flat tax rate implemented while others use a graduated tax rate. A flat tax is a single fixed rate on income while a graduated tax rate is a percentage that varies based on the level of an individual’s income. 5 states have already adopted the flat tax rate in 2022. Since more and more states are seemingly following this trend, it is safe to assume that America is experiencing a Flat Tax Revolution.
The first states to implement the flat tax were Wisconsin in 1912 followed by Massachusetts in 1917. The other states that hopped in the flat tax band wagon include Colorado in 1987, Utah in 2007, North Carolina in 2014, Kentucky in 2019. These states are now joined with the states that already had a flat tax rate: Indiana, Illinois, Massachusetts, Pennsylvania, and Michigan.
States that are transitioning from graduating tax rates to a flat tax include:
- Iowa at a rate of 3.9 % by 2026
- Mississippi at a rate of 4% by 2026
- Georgia at a rate of 5.49% then to 4.9% by 2023
- Arizona at a rate of 2.5% by 2024
More states including Idaho, Missouri, and Oklahoma will also be adopting the flat tax soon. People in favor of the flat tax flaunt this policy as a benefit of living in the state. The advocacy for the flat tax may inspire the rest of the country to follow suit.
For more of the best information concerning tax rates, deadlines, and other tax factors, visit www.etaxservice.com to connect with our team of experts.