What Self-Employed Moms Need to Know About Filing Taxes
What travel expenses are tax deductible for self-employed moms? What can I write off on my taxes if I’m self employed? Am I eligible for a self employment tax credit? A tax pro answers your most pressing questions.
Source: Mikhail Nilov
A few months after leaving a full-time job for stay-at-home motherhood, I made the decision to take on work as a freelance writer and editor. I can remember excitedly telling friends and former co-workers that I’d found the best of both worlds: I could continue investing in a career I loved and relish the slow, fleeting days of my daughter’s babyhood. I felt fulfilled and delighted by this discovery. But then Tax Day loomed and the rosy outlook I’d had about my life as a freelancer began to dim.
As I inched toward that first filing deadline, I remember my brain swelling with questions: How do I file taxes when I’m self-employed? What self-employment tax forms do I need? Do I qualify for a self employment tax credit? What income am I even supposed to be reporting? As a freelancer, do I need to pay estimated taxes?
Needless to say, for a year or two, the very idea of filing my taxes was enough to raise my heart rate. To save others from the same nerve-wracking fate, we tapped a tax expert to guide you through the most common obstacles to filing taxes when you’re self employed.
Meet the Expert
Lynn Ackerman: CERTIFIED FINANCIAL PLANNER™ and Certified Public Accountant at Ellevest, a financial planning and investing company for women.
What Income Is Subject to Self Employment Tax?
The net income you earn from your own trade or business. For example, any net income (profit) you earn from goods you sell or services you provide to others counts as self-employment income. If you were paid less than $600 from a company, or you were paid by individuals for your services or products, you may not receive any tax documents from them. Regardless, you still need to report this income when filing.
How Do I File Self Employment Taxes Without a 1099?
You may want to contact the company you completed work for to determine if a 1099 was issued. If you don’t have this tax form on-hand, you'll simply include the income you earned on your return when filing.
If you work as a contractor for a company or companies, you'll receive a 1099-NEC from each one. This form will include all the amounts paid to you by the business. If you have expenses for your work for this company—or general business expenses related to your overall business income—some of these may be deductible on your tax return. These amounts will net out from your business income to show your taxable business income.
When you receive your 1099-NEC, here’s what to look out for: Box 1 will show the amount you were paid by the company. Generally, there won't have been tax withholding on this amount, but if there was you'll see it in Boxes 4 and 5.
What Is Self Employment Tax? What Self Employment Tax Form Do I Need?
The self-employment tax rate is a combination of Social Security and Medicare taxes and it’s 15.3 percent for 2024. You'll use Schedule C to calculate net earnings and Schedule SE to calculate how much tax you owe. You can deduct 50 percent of your self-employment tax on your income taxes.
Did you know you can deduct 50 percent of your self-employment tax on your income taxes?
What Can I Write Off on My Taxes if I’m Self Employed?
Deductions are usually everyone’s favorite tax topic, because they can make a huge difference on your tax bill by reducing the amount of income that's subject to tax. Some of the more common deductions are for home office, health insurance premiums, continuing education, mileage, retirement savings, self-employment taxes, business insurance premiums, office supplies, phone and internet, business travel and meals, advertising, and membership to professional organizations. Be sure you understand the rules on what and how much qualifies for each of these deductions.
In addition, everyone gets one of two tax deductions: standard or itemized. Each taxpayer gets to claim the one that lowers their income the most.
As the name suggests, standard deductions are fixed amounts that correspond to each filing status. For 2024, single filers and those who are married filing separately can deduct $14,600; joint filers can deduct $29,200; and head-of-household filers can deduct $21,900. If you’re married on December 31, you can’t file single for that year.
Itemized deductions are anything but standard. In fact, it’s different for everyone, every year. These are qualifying expenses across a whole range of categories—for example: state income taxes paid, property taxes, mortgage interest, and charitable contributions. If these add up to more than your standard deduction amount, it’s more advantageous to claim these itemized deductions instead.
Each itemized deduction category has different rules on who and what qualifies, and those who claim itemized deductions usually have more complicated tax filings. Consider tapping a tax pro to destress the process and determine what unique expenses could lower your taxable income. Don’t forget: You’ll need proof to claim itemized deductions. Save your receipts and organize your records!
How Can I Reduce My Income Tax While Self Employed?
Tax credits are another way to reduce your taxes. Rather than reducing your taxable income, tax credits reduce your tax bill directly. Two of the more common tax credits are the child tax credit and the child and dependent care credit. These credits vary depending on your income level and the amount you spend on qualifying daycare.
An additional way to reduce your taxable income is to make contributions to traditional (which means pre-tax) retirement accounts. While nothing is “simple” when it comes to taxes, this type of tax deduction is as close as it gets. Why? It’s in the name. The contributions you make to these retirement accounts are before the money is taxed. Meaning, you don’t pay taxes on the funds until you withdraw them in retirement.
That’s where the “simple” part stops. Contributions to self-employed retirement accounts, like SEP IRAs and solo 401(k)s, each have their own maxes, deadlines, and deduction rules. A tax pro can help you navigate tax deductions for these contributions.
Am I Eligible for a Self Employment Tax Credit?
If the Self Employed Tax Credit, or SETC, sounds too good to be true, that’s because it doesn’t actually exist—at least, not in the way social media influencers have been spinning it. In July 2024, the IRS issued a consumer alert, cautioning independent workers against falling for false claims that freelancers, sole proprietors, gig workers, and more are eligible for up to $32,000 in tax credits, if they can provide documentation of disrupted income due to COVID-19.
However, buried within this self employment tax credit story is a kernel of truth. According to the IRS, Sick and Family Leave Credits are a legitimate source for self-employed individuals to find pandemic-related financial relief. But the criteria is so specific, limited, and technical that most people do not even qualify.
“[The Self Employed Tax Credit] is another misleading social media claim that’s fooling well-meaning taxpayers into thinking they’re due a big payday,” IRS Commissioner Danny Werfel said in a statement. “People shouldn’t be misled by outlandish claims they see on social media. Before paying someone to file these claims, taxpayers should consult with a trusted tax professional to see if they meet the very limited eligibility scenarios.”
What Percentage Should I Set Aside for Taxes if I’m Self Employed?
Let’s zero in on estimated tax payments, or payments to the IRS on income that isn’t taxed upfront. So, what kind of income isn’t taxed upfront? The most common examples are self-employment and contractor earnings. But it can also apply to certain income both 1099 and W-2 workers make on the side, like dividends, realized capital gains (which is the taxable income from selling investments), rents, and other non-wage earnings. If you make money from something other than W-2 work, contact a tax pro ASAP to ask if you’re on the hook for making estimated tax payments.
The sense of urgency here is warranted for two reasons. First: If you forget to make estimated tax payments, you may receive a penalty at tax time. Second: Estimated tax payments are due as you earn the income throughout the year–not all at once on Tax Day. So, you need to know your payment deadlines.
To space things out a little, the IRS divides the year into four pay periods. Say you made a significant amount of money from a house sale in July and expect to owe tax on some or all of the gain. You may need to make a tax payment by the IRS’s Q3 estimated tax deadline, rather than on Tax Day. And don’t forget to pay state estimated taxes too, if needed.
If you have a side hustle and make money throughout the year, you'll want to estimate the taxes due as your income comes in and make payments in April, June, September, and January.
For some types of income like retirement account distributions and unemployment income, you can request that withholding be made. If you do this, you won't need to pay estimated taxes–so when requesting these types of payments, read the instructions closely. It can make your taxes a whole lot easier!
How Can I Reduce My Risk of Triggering an IRS Audit?
If you file a Schedule C to report profit or loss from a business, your odds of drawing additional IRS scrutiny go up. There are a variety of audit triggers, but it doesn’t necessarily mean you’ve done something wrong. The main thing is to keep good records and documentation to support your return in the event of an audit.
Here are a few things to consider:
Ensure that you have a separate bank account for your business, and maintain proper documentation to support any deductions you make.
Keep detailed records that document the amount, place, people attending, business purpose, and nature of the discussion or meeting.
To take advantage of the home office deduction (available to people who are self-employed), you must use the space exclusively and regularly as your principal place of business.
To deduct travel expenses, keep detailed mileage logs and precise calendar entries for every car trip.
For more support this tax season, check out Ellevest’s 30 Minutes with a Tax Pro session or their Comprehensive Planning Package + Tax Strategy that teams you up with both a tax pro and a CFP® pro. And if you’re not sure where to start, you can book a complimentary 15-minute call to see which financial or tax planning session is right for you.
