How to file self-employed taxes

Learn how to file self-employed taxes properly by considering what to set aside each quarter and year, how to track deductions, and how to work with a professional bookeeper.

It’s that time of year: we’re officially in the middle of tax season. For the eager few, you may have already received your refund, but for many others, you’re already thinking about filing an extension for your self-employment taxes. 

If you’re in the latter group, fear not. It’s easy to learn how to file self-employed taxes as long as you stay organized and don’t skip any steps.

Many of these tips for filing self-employment taxes are best used year-round. The earlier you start organizing your expenses and finances, the simpler it will be to pay self-employment tax each year. If you have only a few weeks or months to prepare for filing this year, check out our tax filing checklist to ensure you have everything you need.

Jump to:

• What to know about the self-employment tax rate for 2024
• 7 tips for self-employment taxes
• Who has to file taxes on self-employment income?
• Avoid these 7 common tax-filing mistakes
• Make self-employment taxes easier with HoneyBook

What to know about the self-employment tax rate for 2024

The self-employment tax is an additional cost that self-employed taxpayers must account for, on top of their income tax rate. Your tax bracket determines your income tax rate, but the self-employment rate is set each year. The IRS imposes this tax because you don’t have a typical employer taking out employment taxes for you.

For 2024, the self-employment tax rate is 15.3%, which is broken down this way:

• 12.4% for Social Security tax
• 2.9% for Medicare tax

Note that the rate stayed the same from 2023 to 2024, and it only applies to $160,200 of your taxable income. Anything beyond that limit is only taxed at the Medicare rate of 2.9%. You’ll report these taxes on Schedule SE of Form 1040, which is the Self-Employment Tax IRS form.

Knowing this rate means you can start calculating what you owe, which is especially important when you’re preparing to pay estimated taxes, submitted quarterly. The next section discusses this requirement and other pro tips for getting your self-employment taxes taken care of the right way.

7 tips for filing self-employment taxes

Filing and paying taxes involves many moving parts. Tax law can be incredibly complicated, and it’s never fun to see a portion of your earnings deducted. However, with the right strategy, you can make the most of your self-employment tax process, ensuring you’re taking all applicable deductions and credits while avoiding penalties or issues.

These 7 tips will help you get on the right track:

1. Make efficient quarterly payments

“How much will I get back?” is a common question. If you had withholding on a W-2 or made estimates throughout the year, this is a valid consideration. If you had income and no withholding and made no estimates, then a more likely question is, “Did I set enough aside to cover my taxes?”

So what are tax estimates? If you’re self-employed, you generally need to make estimated tax payments. And it’s important to be aware of the quarterly income tax estimates you should make for both federal and—for most of you—state income tax.

Quarterly estimates are generally due in April, June, September, and January, usually on the 15th of the month. The idea is to pay about a quarter of the taxes you owe based on last year’s net income on a quarterly basis to avoid penalties.

Check your form 1040-ES for your prior year’s return for your federal income tax estimate—it may even already have the numbers filled out. However, if you made less than last year, you may want to work with a tax professional to calculate a lower estimate.

2. File an annual tax return

All business owners and self-employed taxpayers still must file an annual tax return. This return reports all income from the year and deductions, such as business expenses. You’ll also report the quarterly payments you made throughout the year to show compliance.

While quarterly tax payments plus your annual return may sound like too many responsibilities, they help you stay in good standing with the IRS and avoid penalties and interest. 

3. Set aside 30% of your net earnings

A good rule of thumb is to set aside at least 30% of your net business income for income taxes if they aren’t being taken out of your pay, including self-employment tax. If you live in a state like New York or California, that number may be closer to 40%.

Even if you’re making your estimates by using the vouchers and instructions from last year’s filing, you may still owe more if your situation changes or you made more money this year.

An excellent best practice is to look at your monthly net income (revenue minus expenses) and multiply it by 30%. Put that in your separate tax savings account, and hold on to it until you file your taxes.

4. Save travel and meal receipts for tax deductions

You don’t have to save all of your receipts in order to get your bookkeeping finished, or even do your tax return, as long as you have bank or credit card transactions to rely on. With small business CRMs like HoneyBook, you can also track expenses easily as you go so there’s no need to hold on to paper receipts or try to keep a messy spreadsheet up to date. Be sure to keep track of all the business tax deductions you’ll be eligible to write off on your taxes.

However, you do need to save receipts for meals and travel expenses over $2,500. Whenever you use your business card for a meal, be sure to write on it who you were with and what the business purpose was. Then, save it in a cloud-based storage solution for easy access in case you’re ever audited.

The burden of proof is on you to prove to an auditor that the meal, travel, or expense was for business. Document your evidence. This also goes for ambiguous vendors on your statements, like Amazon.

5. Properly track your mileage

If you drive for your freelancing work, you are probably entitled to a mileage deduction. Make sure you track your mileage—you’ll need to know the total driven as well as the personal miles. If you’re into apps, consider using MileIQ to automatically log your miles.

If you prefer a more analog approach (or just like buying moleskins), then get a little notebook for your console and be sure to write your starting mileage, ending mileage, date, and purpose of the business trip each time you drive.

6. Consider all deductions in your tax preparation

You are entitled to legal ordinary and necessary business expenses as tax deductions. These may be meals or travel as well as equipment, software subscriptions, contractor fees, and more.

Other business expenses you can deduct as a self-employed worker include the following:

• Health insurance premiums
• Business insurance premiums, including business liability and malpractice
• Retirement contributions
• Training and education costs
• Business license costs
• Home office deduction

Also, you can claim half of what you pay in self-employment tax as a deduction on your income. 

When you’re thinking about what to write off, ask yourself if it is necessary for your work. Then, keep any documentation if you think it might be a gray area, and ask your tax professional.

Don’t be worried about getting audited if you’re not doing anything illegal and you have documentation. If you have a home office, make sure you take a picture of the space to have on hand just in case.

7. Establish professional bookkeeping

Bookkeeping is the foundation of any financial decision, analysis, or tax filing. If you don’t have bookkeeping in place, then you probably don’t have a reliable set of data to be making decisions and paying taxes on.

Without bookkeeping, it will also make it hard to calculate that 30% or 40% to set aside for income taxes. Good books make everything else in your financial life much easier.

Who has to file taxes on self-employed income?

If you’re wondering if all this applies to you, there’s an easy question to ask yourself: is my self-employed income more than $400 per year? If so, you do have to file taxes on that income. Self-employment taxes will apply to nearly any business classified as a sole proprietorship. You’ll still have to pay Social Security and Medicare in any scenario once you’ve passed the $400 threshold.

Avoid these 7 common tax-filing mistakes

• Underestimating or underreporting income
• Commingling personal and business transactions
• Avoiding bookkeeping throughout the year
• Missing important due dates
• Not setting aside money for taxes
• Failing to understand deductions
• Not seeking professional help when you have questions or lack the needed systems to keep things organized

Make self-employment taxes easier with HoneyBook

Just because you’re self-employed doesn’t mean you have to do it all on your own. Investing in bookkeeping, business management, or tax software will save you time gathering the numbers you need for expenses, business income, and more.

HoneyBook is an all-in-one clientflow management software that lets you communicate with clients, accept online payments, track expenses, and view your year-end financial reports. It also syncs seamlessly with Quickbooks Online so you can manage all your financial data in one place.

Keeping tabs on your self-employment tax obligations and maintaining organized records starts with the right platform behind your business. With HoneyBook, you can keep everything in one place, which sets you up for success as you save for self-employment taxes and keep your business financially healthy.

This article is intended for general educational purposes based on generalizations and does not replace professional accounting, investment, legal, tax, or business advice. This information is based on the IRS guidance for the 2024 tax year. You should employ a professional for advice on taxes, investments, the law, or any other business and professional matters.