Introduction
Introduction to Self-Employment
Small businesses, including self-employed individuals, are a big part of the U.S. economy. Small businesses are responsible for 60% to 80% of all job creation and more than half the gross national product (GNP). This sector is so important that it has its own division within the IRS, called the Small Business and Self-Employed Division (SB/SE). It handles more than 33 million full- and part-time self-employed individuals and 12 million other small businesses with assets under $10 million.
Are you a "small business"? The answer may be "yes" for some purposes and "no" for others. The tax law has more than a dozen different definitions of "small business." This matters because being a small business may entitle you to special tax breaks.
The key to business success from a tax point of view is not how much you make but how much you get to keep after you figure your taxes. Deductions and credits are included in the tax law to enable you to reduce the amount of profits on which you pay tax. Deductions are valuable because they help you minimize the amount of income on which you figure your tax. Credits are more valuable still, because they reduce your tax bill on a dollar-for-dollar basis.
As a self-employed individual, your tax obligations are substantial. Not only must you keep records to figure your taxes and pay what's owed, but you also may have to deal with payroll taxes if you have employees, and collect sales taxes if your locality says so. As you operate your business, be sure to keep an eye on tax responsibilities.
