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Tax Filing Status

You must report all income you receive from your business on your tax return unless it is excluded by law. If you own more than one business, you must file a separate tax return for each business.

 To file your return, you must use Schedule C or Schedule C-EZ to report your income or loss. If a reported loss is caused by an activity “not engaged in for profit,” the loss is not allowed as a deduction against other income. Small business and individuals who are in business for themselves and make under $5,000 may be able to use Schedule C-EZ. When a net profit of at least $400 is reported on the Schedule C or C-EZ, Schedule SE should be filed. Other tax forms may be needed, depending on the type of business and where the business operates.

Business with two or more owners generally are not eligible to use Schedule C. A partnership return would have to be filed unless you are qualified for some other type of business return. A married couple who jointly operate an unincorporated business and who file a joint return can elect not to be treated as a partnership for tax purposes. The husband and wife can be the only members of the qualified joint venture and both must materially participate in the business.

The Head of Household filing status is for individuals that are the main providers of the household for themselves and a qualifying individual. This filing status allows you to take a higher standard deduction, possibly be eligible for a lower tax bracket, and perhaps qualify for the Earned Income Credit. If you are single or separated, check to see if you qualify for the Head of Household filing status.
This is a nonrefundable tax credit for payments of qualified tuition and related expenses for post-secondary education. The allowed credit is 10% of the qualified tuition, fees, and expenses you, your spouse, or a dependent paid for courses. You do not have to be in a degree program, a full-time student, or in the first four years of post-secondary education to qualify for the Lifetime Learning credit. The maximum credit allowed per return is $2,000.
Since an employer is not withholding taxes from your income on your behalf, you may need to make quarterly estimated payments by filing Form 1040-ES, Estimated Tax for Individuals. Last year’s tax return is needed to fill out the form. Payments can be made by mail or online using either the IRS’s Electronic Federal Tax Payment System or Electronics Fund Withdrawal.

Popular Questions

If you obtain an annulment that declares your marriage never existed, you are considered unmarried for this and any previous tax years. You must amend your tax returns for all the tax years not affected by the statute of limitations for filing a return (usually three years) to show this change in marital status.
If you are married, you may choose to file a Married Filing Jointly or Married Filing Separately return. On a joint return, you report your combined income and deduct your combined allowable deductions. You may file a joint return even if only you (or your spouse) had income.

If you are married, you may choose to file separate returns. This may be advantageous if this results in less tax liability or if either of you prefers to be responsible only for your own tax liability. You may not claim your spouse as a dependent when you file with this status. If you were separated during the entire last half of the tax year, one of you may qualify as Head of Household if certain conditions are met.

If you are married, you have a choice of filing statuses: Married Filing Jointly or Married Filing Separately. To be sure that you pay the lowest tax, calculate your return both ways. It is usually advantageous for a married couple to file jointly. However, if both of your incomes are about the same, you may pay more in taxes by filing jointly depending on the rest of your return.

Self Employment

Like Social Security and Medicare taxes withheld for most employees, self-employment taxes are the Social Security and Medicare amounts withheld on income primarily for individuals who work for themselves. You must pay self-employment tax if your net earnings from self-employment (not church related) are $400 or more, or if you made $108.28 or more as a church employee. Special self-employment tax rules for caregivers, or individuals who work in the homes of elderly or disabled individuals, can be found in Publication 926.


The self-employment tax rate for income earned in 2014 is 15.3%. This rate is broken down into 12.4% for Social Security (old-age, survivors, and disability insurance) on earnings up to $118,500 and 2.9% for Medicare (hospital insurance). In addition, if your adjusted gross income (AGI) is more than $200,000 ($250,000 if married filing jointly), the income over this AGI is subject to an additional 0.9% additional Medicare tax.

•    You carry on a trade or business as a sole proprietor or an independent contractor

•    You are a member of a partnership that carries on a trade or business
•    You are in business for yourself and receive payments for products or services you provide but you are not an employee

Avoiding Tax Problems

Not staying up-to-date on the tax code. Research the latest changes to the tax code before filing your own taxes. New laws, such as the Affordable Care Act (also known as Obamacare), will affect many taxpayers and are constantly changing. Under the ACA, uninsured Americans who are not exempt from the law will be penalized. If you don’t have health insurance, you could pay the penalty, which will be the greater of 2% of your income or $325 per adult and $162.50 per child.

 Not claiming all earned income. You must report all earned income on your tax return. When money is found that you did not report, you could owe interest and penalties in addition to the tax owed on that income.

 Number errors. Whether it’s a Social Security Number or a number for income, incorrect number transfers on any form could cost you. Be mindful when entering bank account information when opting for direct deposit. The last thing you want is for someone else to receive your refund. You should double check all numbers entered on your tax return.

Math errors. Many taxpayers use tax software, and most will not catch errors for incorrect data entry. You should double check your numbers and then double check your calculations.

Filing under an incorrect status. With five different filing status options available, the most accurate one for a taxpayer’s situation may not be easily determined. Each filing status could have an impact on the tax liability.

Mismatched names. This is a common mistake for newlyweds, typically when the wife takes a new last name and has not notified the Social Security Administration. The same issue may pop up for same sex marriages now that the federal government recognizes their union. The opposite applies as well – divorcees who have a name change need to notify the Social Security Administration. If your name does not match the name and Social Security number the IRS has on file for you, the tax return could be rejected or the refund could be delayed.  

Paying multiple state taxes. Don’t forget that income earned in another state must be reported. If you reside in one state and work in another, a nonresident tax return must be filed in the state in which you work. Only the money earned in that state needs to be reported. However, if you fail to file this return, you could face interest and penalties, in addition to the taxes owed.

Forgetting to sign the forms. It is an all-too-common mistake to forget to sign on the bottom line. While this may not cost you money upfront, it will cause a delay in receiving any anticipated refund. For those who owe the IRS and wait until the very last minute to file, forgetting to sign their tax return could cost them a late fee and penalty when the IRS sends it back for signature and April 15th has passed.

Falling for tax schemes. One of the fastest growing concerns for the IRS is tax refund fraud and identity theft. Taxpayers have lost hundreds of thousands of dollars because criminals tricked them into believing they owed the IRS. The IRS will never send an unsolicited email or contact you through social media channels. The IRS does not ask for personal or financial information. If you believe you may be at risk for identity theft, you should probably contact the IRS Identity Protection Specialized Unit by calling their toll-free number at 1-800-908-4490.

Missing a deduction or credit. While penalties and fees mentioned above could cost you plenty, missing a deduction or tax break could cause you to owe more than you actually should or get a lower refund than what you earned.

Since an employer is not withholding taxes from your income on your behalf, you may need to make quarterly estimated payments by filing Form 1040-ES, Estimated Tax for Individuals. Last year’s tax return is needed to fill out the form. Payments can be made by mail or online using either the IRS’s Electronic Federal Tax Payment System or Electronics Fund Withdrawal.

Education

If you are an elementary or secondary school teacher, instructor, counselor, principal, or aide and you have worked at least 900 hours during a school year, you may deduct the cost of books, supplies, computer equipment (including software and services), and other materials used in the classroom. You may deduct up to $250 of these expenses directly against your income, without itemizing deduction. Each qualified taxpayer may deduct up to $250 in expenses on a joint return. Remaining expenses can be deducted as a miscellaneous itemized deduction on Scheddule A, subject to the 2% of adjusted gross income limit.
An education savings account, Coverdell ESA, can be established for a child under he age of 18. Any individual (including the child) can contribute to the account during the year if they meet certain income limitations. The total annual contributions per beneficiary are limited to $2,000. Withdrawals will be tax-free when used to pay education costs (elementary school, secondary school, or a post-secondary school such as a college) for the beneficiary.
Students attending eligible higher education institutions need more than Form 1098-T, Tuition Payments Statement, if challenged to prove paid educational expenses. Receipts from the educational institution showing the amount actually paid for tuition and fees are adequate for verification. Canceled checks or bank statements are also good records. If payments included amounts for charges other than tuition and fees, you should save a copy of billing documents from the school that break down the charges individually.
You may be able to claim a deduction of up to $2,500 for interest paid on a qualified student loan. Only the amount of interest actually paid during the year may be deducted. You cannot claim the deduction in any tax year in which another taxpayer claims you as a dependent. You do not need to itemize to claim this interest. This amount is subject to a phaseout, which begins at $60,000 of income for a single person and at $125,000 for a married couple filing a joint return.
If you are unable to claim the American Opportunity or Lifetime Learning Credits, you may be able to claim a tax deduction for qualified higher education expenses. You can take a deduction of up to $4,000 for qualified tuition and related expenses as an adjustment to income, even if you do not itemize your deductions. Certain restrictions apply.

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