Being your own boss has its rewards, but tax time can feel overwhelming when you’re responsible for everything yourself. If you made $400 or more from self-employment in 2024, you’ll need to file additional forms beyond the standard 1040. Here’s what you need to know to get it right.

Whether you freelance on weekends, drive for a rideshare company, or run a full-time business, the IRS treats your income the same way. You’re responsible for reporting all earnings and paying both income tax and self-employment tax – which covers your Social Security and Medicare contributions.

The Forms You’ll Actually Need

Schedule C: Your Business Profit and Loss

This is your main form for reporting self-employment income. You’ll use Schedule C to report all the money you earned from your business and subtract your legitimate business expenses. The resulting profit (or loss) flows to your main tax return.

You need Schedule C if you’re a sole proprietor, freelancer, independent contractor, or single-member LLC. Even if you have a regular W-2 job and do side work, that extra income goes on Schedule C.

Here’s what actually happens: Let’s say you earned $45,000 from freelance graphic design work in 2024. You’ll report that $45,000 as income on Schedule C. Then you subtract business expenses like your computer ($2,000), software subscriptions ($800), and home office costs ($1,500). Your net profit becomes $40,700 – that’s what gets transferred to your main tax return.

Schedule SE: Self-Employment Tax

Here’s where many people get surprised. As a self-employed person, you pay both the employee and employer portions of Social Security and Medicare taxes. That’s 15.3% on your net earnings from self-employment – 12.4% for Social Security plus 2.9% for Medicare.

Using our $40,700 example above, you’d owe $6,227 in self-employment tax (15.3% × $40,700). The Social Security portion only applies to your first $176,100 of combined earnings in 2025 (up from $168,600 in 2024). But the Medicare tax applies to all your self-employment income, and if you earn over $200,000 as a single filer ($250,000 married filing jointly), you’ll pay an additional 0.9% Medicare tax.

This exists because when you’re employed, your employer pays half of your Social Security and Medicare taxes. When you work for yourself, you’re both the employee and the employer, so you pay the full amount.

Warning: Quarterly Estimated Taxes Are Required

Unlike employees who have taxes withheld from every paycheck, you need to pay estimated taxes four times a year if you expect to owe $1,000 or more in taxes. Most self-employed people fall into this category because they owe both income tax and self-employment tax.

2025 quarterly tax deadlines:

• April 15, 2025 (for January-March income)
• September 15, 2025 (for June-August income)
• June 16, 2025 (for April-May income)
• January 15, 2026 (for September-December income)

To avoid penalties, you generally need to pay either 90% of this year’s tax obligation or 100% of last year’s tax bill through estimated payments (110% if your prior year income exceeded $150,000).

What this looks like in practice: If you owed $8,000 in total taxes last year, you should pay at least $2,000 each quarter ($8,000 ÷ 4) to avoid penalties. Set aside 25-30% of every payment you receive – don’t spend money that belongs to the IRS.

Business Deductions That Actually Save Money

Smart business owners track expenses throughout the year because every legitimate deduction reduces your taxable income. The IRS allows deductions for expenses that are “ordinary and necessary” for your business. Here are the big ones:

Home office: If you use part of your home exclusively for business, you can deduct $5 per square foot up to 300 square feet (maximum $1,500). Your home office must be used regularly and exclusively for business – working from your kitchen table occasionally doesn’t count. This includes utilities, but you can’t double-dip by also deducting those separately.

Business vehicle use: Track your mileage religiously. For 2025, you can deduct 70 cents per mile for business driving (up from 67 cents in 2024). If you drive 10,000 business miles, that’s a $7,000 deduction. Alternatively, you can deduct actual car expenses like gas, repairs, and insurance based on the percentage of business use.

Equipment and supplies: Computers, phones, software subscriptions, office supplies – if it’s ordinary and necessary for your business, it’s likely deductible. A $3,000 laptop used 100% for business? Fully deductible. Equipment over $2,500 may need to be depreciated over several years, but 2025 brings back 100% bonus depreciation, meaning you can write off the full cost in the year of purchase.

Professional development: Courses, conferences, books, and subscriptions that improve your business skills are deductible. That $500 online course on digital marketing? Deductible. The $200 industry conference? Deductible (including travel costs).

Business insurance: Premiums for general liability, professional liability, and other business insurance are fully deductible. Even if you pay $2,000 annually for coverage, that’s $2,000 less in taxable income.

Startup costs: New business owners can deduct up to $5,000 in startup costs in their first year, including market research, advertising, and training costs.

Common Mistakes That Cost Money

Mixing personal and business expenses: Keep separate bank accounts and credit cards for business use. The IRS will disallow deductions if you can’t prove business purpose. If your business credit card shows charges for groceries and gas stations, you’ll need receipts and documentation showing which were business meals and which were personal purchases.

Poor record-keeping: Use accounting software or even a simple spreadsheet to track income and expenses monthly. Trying to recreate a year’s worth of records at tax time is a nightmare. Many people miss thousands in deductions simply because they didn’t keep track.

Forgetting estimated payments: This is the biggest shock for new self-employed people. You get a $15,000 freelance project, spend the money, then discover you owe $4,500 in taxes by January. Set aside money immediately when you receive payment – treat it like it’s not yours.

Not understanding the business vs. hobby rule: The IRS expects businesses to make a profit. If you claim losses year after year without showing profit intent, they might reclassify your business as a hobby, disallowing your deductions.

Claiming questionable deductions: Yes, that business lunch is deductible (50% of the cost). No, your family vacation isn’t deductible even if you checked email twice. When in doubt, keep detailed records and be conservative.

When to Get Professional Help

Consider hiring a tax professional if you:

• Have business income over $50,000
• Claim significant business deductions (over $10,000 annually)
• Have employees or multiple business entities
• Operate multiple businesses
• Feel overwhelmed by the complexity
• Got notices from the IRS

A good accountant often pays for themselves through tax savings and helps you avoid costly mistakes. They also understand deductions you might miss and can help with tax planning throughout the year.

The Bottom Line on Self-Employment Taxes

Yes, you’ll pay more in taxes as a self-employed person – that 15.3% self-employment tax stings, especially when you’re used to splitting payroll taxes with an employer. But you also get access to business deductions that can significantly reduce your taxable income.

The key is staying organized throughout the year, making quarterly payments, and treating your tax obligations as seriously as any other business expense. Every dollar you spend on legitimate business expenses is a dollar that won’t be taxed.

Remember: the IRS takes a close look at Schedule C filers because there’s more opportunity for errors and questionable deductions. Accuracy and honesty are your best protection. Keep good records, pay your quarterlies on time, and don’t try to be clever with deductions that can’t pass the “ordinary and necessary” test.

Most importantly, don’t let tax complexity paralyze you. Millions of people successfully file as self-employed every year. Start with good record-keeping habits, make those quarterly payments, and build from there. Your business success is worth the extra effort.

Key Takeaways

• Use Schedule C to report business income/expenses and Schedule SE for self-employment tax

• Pay 15.3% self-employment tax on net earnings, plus regular income tax
• Make quarterly estimated tax payments to avoid penalties and interest

• Track all business expenses throughout the year – they directly reduce your tax bill

• Set aside 25-30% of every payment for taxes before spending

• Consider professional help if your business income exceeds $50,000 or situations are complex