Common Home Office Tax Questions, Part 2

The Internal Revenue Service considers you self-employed if you meet any of the following requirements:

You are the sole owner of a business;

You are in a partnership that qualifies you to file the IRS partnership form 1065;

You perform a service or trade, full or part-time, that provides your livelihood;

You are self-employed, and you are required to pay the Self Employment tax and Estimated Taxes.

The SE tax covers your Medicare and Social Security payments, much like the withholding payments an employer makes on a W-2 form. The tax rate is broken into two parts: the largest part covers Social Security and a smaller portion goes to cover Medicare benefits. SE taxes cover the earnings over a fiscal year, January 1rst - December 31rst. The tax owed can be computed using the 1040 Schedule SE, which must be remitted when your income taxes are filed.

Estimated taxes are a projection of your future earnings for the upcoming fiscal year. You will need to pay estimated taxes if you meet both of these requirements:

You expect to owe more than $1000 in taxes that year.

You expect your taxes to be the same as or more than the taxes you paid for the previous year.

Remember, self-employed taxpayers must pay estimated taxes quarterly to the IRS or will be charged a penalty. If you overpay your estimated taxes, the balance is usually transferred to next year's estimated taxes.

An independent contractor is an individual that performs a service for a company and receives payment for those services but the company only has control over the end result of that person's work, not how it gets accomplished. Companies do not withhold taxes for independent contractors and usually require contractors to fill out a 1099-MISC form.

Sometimes companies may try to classify an employee as an independent contractor in order to avoid paying taxes and benefits. Generally, the IRS considers you an employee if:

The company controls all aspects on how a service is performed.

If the company offers you employee-like benefits such as like paid sick days and insurance.

If the company pays you wages as opposed to a flat fee per service performed.

Note: If you are still unsure on your employment status, the IRS is happy to help. They offer the SSA form, which you can file and they will make that determination for you.

A 1099-MISC form is required by the IRS if a company pays an independent contractor over $600 a year for services rendered. A copy of the form must be sent to the contractor at the end of January, much like a W-2 form. The independent contractor should include all 1099 forms when filing their income taxes.

Yes, if you meet the same requirements as the self-employed.

To obtain the necessary home office tax forms visit the Internal Revenue Service website.