I'm transitioning to self-employment/1099 work and wanted to share my understanding of the tax process and get confirmation I'm not missing anything.
Im from the US, MFJ, just my income, and my state doesn't have income tax so I shouldn't have anything to do with state tax.
As i understand it:
Step 1
As a 1099 worker, you pay two types of federal tax:
1. Self-employment (SE) tax. Social Security + Medicare. Paying the full 15.3% (on 92.35% of net income).
2. Federal income tax. Same brackets as everyone else, but some adjustments.
Step 2
IRS expects estimated payments four times a year (if you'll owe $1,000+ at filing). You can pay via IRS Direct Pay via a Business(?) account.
Step 3
End of tax year, file a regular Form 1040, plus:
- Schedule C — reports your business income and expenses
2. Schedule SE — calculates your self-employment tax
3. Schedule 1 — carries the half-SE-tax deduction to your 1040
Is that it? Nothing I have to do throughout the year or anything else I have to submit per-end of year tax?
Appreciate any input, it sounded intimidating at first but now seems kind of too simple.
Can anyone confirm the self-employment tax process? (US)
byu/WalkingApple intax
Posted by WalkingApple
7 Comments
That’s the basics!
If you are using a personal vehicle for the business, there’s an IRS publication for that specifically
If you have a home office, there is an IRS publication for that specifically.
Look up depreciable assets and the de minimis exception.
If you buy and sell or make and sell inventory, there’s a publication.
That’s usually the next four common things.
There are a slew of other things or forms a business might need use when filing a tax return, but they start to get much more specific most might not use them often or ever. Without knowing anything about your business, hard to now anything relevant there.
Yeah, you have captured most of it. You missed the QBI deduction on form 8995. Also, if you pay for your own health insurance, you can deduct that on Schedule 1 as well. And you don’t have to create a special business account with the IRS. As long as you are filing a personal tax return, you just pay your estimated tax payments to the IRS on your personal account linked to your SSN.
Step 1 is true, although note if this stacks on top of other income, or is above your standard/itemized deduction half of that is deductible and there’s also a 20% QBI deduction for most filers.
Step 2 is true – four payments help reduce/eliminate an underpayment penalty. If you have withholding otherwise (another job, e.g.) then you can use that instead. Or if you owe a small enough amount (<$1,000 for example) you don’t need to do estimated payments.
Step 3 is true. Don’t forget the QBI deduction, it’s 20% off the lower of your business income or taxable income (before QBI deduction and minus capital gains).
Say you make $100,000 of net profit – your [tax situation should look like this](https://i.imgur.com/YAmmzam.png) assuming Single standard deduction.
Self employment taxes are 15.3%×0.9235 = 14.13% of $100,000 or $14,130.
Take your annual income, $100,000 and subtract half that to leave AGI of $92,935.
Subtract the standard deduction (or itemized total) of $16,100 leaving $76,835.
The lower of that and your SE income is $76,835 as your QBI basis.
Take 20% of that ($15,367) off your basis leaving a taxable income of $61,468.
Federal tax on that is $8,237, so add in the SE tax from before and we’re at a total of $22,367 tax before any credits.
Divide by 4 to get $5,592.
You’ve got the filing side down really well. The part that *feels* too simple is because most of what you listed is what happens **after the year is already over**. What surprised me when I first went 1099 is that nothing in that process really tells you what’s happening while the year is going on — you’re just reporting the result at the end. This is the gap.
That’s where I (& most people) got caught off guard, not in the forms themselves.
Since you are transitioning, you should determine if your income will be higher in 2026 vs 2025. If you will be making more, the best strategy is most likely to pay quarterly estimates equal to 110% of 2025 tax and then pay the balance due next April 15th. You can use what you’ve learned to plan ahead and set aside a reserve to pay. Personally, I have a spreadsheet that mirrors my tax return that I update annually for brackets/standard deduction increase that helps me plan estimates.
Lastly, not sure what you are doing for retirement, but setting up a SEP is a really easy process that would allow you to contribute up to 20% of your SE income into a deductible IRA. The 20% limit is net Schedule C income minus the 1/2 SE tax deduction. You can do this in addition to your $7k IRA limit
I don’t know your specific situation so talk to a CPA and/or a qualified attorney for actual advice.
Even if your state doesn’t have an income tax, it still may have other taxes related to running a business, which you are if you are really 1099.
Call your state’s department of revenue and also your county clerk and possibly your city clerk if applicable and ask. Also, ask if you need a business license. Best to do it now rather than far down the line.
CPA here. The last part of Step 2 is worded in a way that could unintentionally mislead you. On IRS Direct Pay you’d make ES payments as an **individual,** *not a business.* This is because your business is reported on Schedule C of Form 1040, not a separate business entity return like Form 1120 (for C-corporations).
Alternatively: Step 2 might only be saying to fund ES payments from a business bank account. Not sure, it’s unclear. But I wanted to clarify because many people get confused when they go to IRS Direct Pay because there’s a button to pay as an individual and another button to pay as a business. Many people who report on Schedule C mistakenly think they should click the ‘business’ button when that is incorrect.