Self Employed Tax Returns

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Self-employed people are considered sole proprietors or independent contractors according to the Internal Revenue Service as well as the Department of Revenue (State of Florida).

This category of pay has to fulfill a litmus test both by the IRS and the State of Florida. The key ingredient is control. What is meant by control is the following:

• if you work for someone and you have to be at their office or their place of business on specific days of the week at specific hours and do specific work; that is control. That makes you a W-2 employee.

Independent Contractor Defined

People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.

•  The above is the definition straight from the IRS, but to further explain the information; if you become a corporation, it then becomes a totally different process. Our advice is to be determined by your annual gross revenues.
• So to reiterate: an independent contractor/sole proprietor can file a tax return through Schedule C, via the 1040 but the net income will be subject to self-employment tax, also known as (FICA) which is social security and it can’t be reduced by any credit. 
• Yet if you are growing and plan on continued growth, then it would behoove you (beneficial to you) to become a corporation, preferably an 1120S or an LLC
• Remember this point: Your net income from the Schedule C will be transferred to line 12 of page 1, of the 1040 which will be subject to income tax which will be added to the self employment tax on line 56 of page 2 of the 1040. This is like paying income tax twice on the same income.

 

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