Tax Prep for Self-Employed Filers

Although many people work for themselves, or are in business for themselves, they may describe their employment status in different ways. Some of the most common technical terms to describe self-employment are:

• Sole proprietors
• Freelancers
• Gig workers
• Independent contractors
• Small businesses owners

This toolkit is for people who file taxes as self-employed individuals. Some examples of people who are treated as self-employed are:

• Independent drivers using taxis or apps, such as Uber and Lyft
• Delivery workers using apps, such as Delivery.com, DoorDash, Grubhub, Postmates, Uber Eats, etc.
• Certain childcare providers, such as home-based daycares and childcare cooperatives
• Freelancers, such as artists, writers, graphic designers, and musicians
• By-the-job professionals doing project-based work

Some companies may classify workers as independent contractors when they are, in fact, employees. This is called “misclassification.” Report suspected misclassification to the Internal Revenue Service and the New York Department of Labor.

If you are self-employed, this toolkit will help you understand how self-employment taxes work and give you some tips on how to best prepare yourself for tax season.

There are some things that every self-employed professional should do, regardless of what industry you are working in. Doing these three things will set you up for success:

1. Track Income and Expenses

It is very important to keep good records. This will not only help you during tax season, but also help you better understand the overall health of your business. A good rule to follow is this: whenever you get paid, make a purchase, or pay an expense, make sure the amount is logged somewhere AND you have proof. Proof can be an invoice, receipt, purchase order, 1099 form, or any official document that shows that the transaction actually took place. If you ever get audited, you will need to show proof – make sure you are ready!

Follow the table below as a guide:

Many self-employed individuals use some kind of software or app to track these transactions automatically. If you use bookkeeping software, it is good practice to check your accounts regularly to make sure your transactions are being logged correctly. If you do not use any software, you can download NYC DCWP’s Free Excel Income & Expense Tracker. You can also download a printable version of the income and expense tracker.

2. Pay Quarterly Estimated Taxes

Because you don’t have an employer that withholds taxes from every paycheck, you'll need to check the IRS's threshold for self-employed income to see if you will need to pay taxes on your own. Taxes are due once every quarter, paid to the IRS and New York State. If this is your first year ever earning self-employed income, you will estimate the amount of money you owe. If you’ve done this before, your quarterly payments will be based on the amount you earned as a self-employed worker the previous year.

Speak to an NYC Free Tax Prep provider or attend a free workshop to ask questions about how to pay your quarterly estimated taxes.   

Below are the due dates for your estimated payments, which you can pay online or by mail. Keep in mind that these dates may change year to year.

• Quarter 1 (January 1 - March 31) is due April 15
• Quarter 2 (April 1 - May 31) is due June 15
• Quarter 3 (June 1 - August 31) is due September 15
• Quarter 4 (September 1 - December 31) is due January 15 of the following year

If you do not pay taxes quarterly, you will have to pay a large lump sum at the end of the tax year, as well as a penalty.

3. File a Year-End Tax Return

Taxes are due every year during the middle of April. Tax Day is usually April 15th, unless this date falls on a weekend or holiday. Before that deadline, you will need to file a tax return. This is when you tell the IRS how much money you made and spent that tax year. If the amount of taxes you paid quarterly was higher than what you actually owe, you will get money back from the government as a refund. If the amount you paid quarterly was lower than what you owe, then you will need to pay the balance by the end of the tax year to avoid penalties and interest.

The specific tax forms you will need vary based on you, the details of your work, and your family. If you make an appointment with an NYC Free Tax Prep provider, a trained tax professional will review your information and file your return for you. You can also attend a free workshop for more information.

You may also qualify to file for free online if your Adjusted Gross Income is below a certain threshold (i.e., you make less than a certain amount). You can visit the IRS Website to learn about this threshold and your options.

These are some of the federal tax forms relevant to self-employed people.

In addition to completing your federal tax return, you will need to file a New York state and NYC tax return as well. The documents and records that you will need to keep for your federal return will also help you file in New York state and NYC. 

First of all, let’s be clear on what “taking as a business expense” means. It doesn’t mean that you don’t need to pay for anything: when you take something as an expense, you take that business-related cost and subtract it from your business’s total taxable income. Examples of some common expenses include:

• Supplies and materials
• Some business travel and meals
• Health insurance premiums
• Technology and software
• Phone and internet costs
• Your car, if you use it for your business
• Home office
• Business-related rental spaces, like a studio or a prep kitchen

You may be eligible for other deductions and credits based on your personal details. Talk to an NYC Free Tax Prep provider or use an E-filing software to help you make sure you maximize your deductions and refund.

Business Use Percentage

Sometimes you will spend money on supplies, materials, technology, or other things you use for both your business and your personal life. It is important to know that you can only deduct these expenses as a percentage of business use. For example, if you use your cell phone for work 50% of the time and for personal reasons the other 50%, you can only deduct 50% of the associated costs. It is best practice to track the costs for the entire year and determine the business percentage as you go.

As you file your taxes and work with tax professionals, these are some common terms you might come across:

• Business entity: Any organization formed to conduct business. Most businesses operate under as of these four types: sole proprietorships, partnerships, corporations, or limited liability companies (LLCs).
  • Sole proprietorship: a business with only one owner who pays personal income tax on their profits. You're automatically considered a sole proprietorship if you do business activities but don't register as any other kind of business.
  • Partnership: a form of business where two or more people share ownership and responsibility for managing the company and the income or losses the business makes.
  • Corporations: this type of business separates the organization from its owners and therefore requires more recordkeeping and reporting than other businesses.
  • Limited liability company (LLC): a business type that separates your personal assets (like a car or house) from business assets.
• Employer Identification Number (EIN): a number that the IRS uses to identify a business (also known as a Federal Tax Identification Number), much like a social security number is used to identify a person. EINs may be required if you have employees and have a certain type of business.
• Payment service provider (PSP): a third-party company that provides payment services to businesses that accept online payment methods, such as credit cards, debit cards, e-wallets, cash cards, bank transfers, and much more. Examples include Amazon Pay, PayPal, Stripe, and Square.

For more information from the New York State Department of Taxation and Finance, you can visit the state's online financial education program.

• Keep good books. If you use bookkeeping software, check it for accuracy. If you use your own income and expenses tracker, make sure it is updated regularly.
  
  
• Save all of your receipts, ledgers, invoices, and proofs of payment. These can be saved directly in a folder on your computer, in an app or software, or as physical copies. It’s good practice to keep your receipts for at least three years from the date you file taxes.
  
  
• Collect the supporting documents you need to file your taxes. Visit the file organizer tool to keep track of all your materials.
  
  
• Plan how you will submit your annual tax returns and pay your Federal and State estimated quarterly taxes. You can file your return online using an IRS-approved free or low-cost e-file service, or file in person with an NYC Free Tax Prep provider. You can pay estimated quarterly taxes online or by mail.
  

If you work for yourself, you need to file taxes annually and make estimated tax payments quarterly.

Join our free Workshops (group sessions) to learn the basics of tax filing and recordkeeping best practices. View event calendar for upcoming workshops.

Want us to co-host a workshop for your organization or community? Submit a Workshop Request Form.

At select in-person NYC Free Tax Prep sites, knowledgeable preparers and enrolled agents sit down with you to complete an accurate personal and business return, including federal and New York State annual and quarterly estimated tax filings. This service is available to families with dependents who earned $93,000 and individuals or couples who earned $65,000 or less in 2024 and have business expenses of $250,000 or less. Use our NYC Free Tax Prep map to find sites that offer self-employed/Schedule C assistance.

Reminder: Please review the checklist of documents you will need to file your 2024 tax return at an NYC Free Tax Prep site specifically for the self-employed.

Learn more about the free resources DCWP offers freelancers, gig workers, and small business owners.