Taxes for people who pay themselves
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- You
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- Blaga Veleva, EA
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- Self-employed
If you work for yourself in Houston, your return carries three extra jobs: Schedule C for business income and expenses, self-employment tax, and quarterly estimated payments. Blaga Veleva, EA, prepares all three, sorts deductible costs from personal ones, and sets up an estimated payment plan so April does not arrive as a surprise bill.
What changes when you get a 1099 instead of a W-2?
No one withholds tax for you, and you pay both halves of Social Security and Medicare. The IRS states that "the self-employment tax rate is 15.3%," and that you file Schedule SE once net earnings from self-employment reach $400 (IRS self-employment tax). That tax comes on top of income tax, which is why first-year freelancers are often caught short.
How should a Texas contractor handle quarterly taxes?
Pay federal estimated tax four times a year. The IRS says individuals, including sole proprietors, "generally have to make estimated tax payments if they expect to owe tax of $1,000 or more" when they file, and that the year "is divided into four payment periods" (IRS estimated taxes). Form 1040-ES is used "to figure and pay your estimated tax" (Form 1040-ES).
Texas has no personal income tax, so there is no state estimate to make. Blaga works out a quarterly amount from last year's return and this year's pace, and adjusts it if your income jumps.
Which expenses can you actually deduct?
Costs that are ordinary and necessary for your work, backed by records. Common ones include tools and equipment, software, a phone, business mileage, supplies, insurance, and a home office used only for the business. Mixed costs get split, and personal costs stay out. The IRS notes that your transactions "generate supporting documents" you should keep (IRS recordkeeping). A shoebox of receipts is fine to start. A simple system is better, and bookkeeping help can set one up.
When should a sole proprietor become an LLC or S corporation?
When the numbers and the risk justify it, not before. An LLC adds a state filing and a Texas franchise tax report; an S corporation election adds payroll and a separate federal return. For some owners the trade is worth it. For others it is paperwork with no savings. Run it through tax planning first, then see forming a Texas LLC if it makes sense.
Behind on records for last year?
You are not the first. The client's own line has been the same for years: if you own a small business and haven't kept up your bookkeeping, the firm can help. Lachezar Velev rebuilds the year from bank and card statements, Blaga prepares a full Schedule C and your personal return on those figures, and then you get an easy system for next year. Details on the catch-up bookkeeping page.
What records should a self-employed person keep?
Enough to prove every number on Schedule C. That means bank and card statements for the account you use for the work, invoices or platform reports showing income, receipts for larger purchases, and a mileage log if you deduct driving. The IRS says you may use any recordkeeping system that clearly shows your income and expenses. Keep business money in its own account; it saves hours at tax time and makes QuickBooks or any other system far easier to keep. Keep the records for as long as the return they support can still be questioned.
A client, in their own words
“They provided clear guidance on when to do my quarterly tax estimates and were flexible with when we scheduled the consultation call! Very personable and informative.”
Questions people ask
Q1How should a 1099 contractor in Texas handle quarterly taxes?
Estimate the year's federal income tax plus self-employment tax, divide it across the four IRS payment periods, and pay with Form 1040-ES or online. If you expect to owe $1,000 or more when you file, the IRS generally expects these payments. Texas adds no state estimate.
Q2I drive for an app and also have a W-2 job. Am I self-employed?
For that side income, yes. The app work goes on Schedule C, and self-employment tax applies once net earnings reach $400. You may be able to raise the withholding at your W-2 job to cover part of it instead of making separate estimates.
Q3I missed my estimated payments. What happens?
The IRS may charge an underpayment penalty, figured on how late and how short each payment was. File on time anyway, and start paying for the current year now. Blaga can check whether an exception lowers or removes the penalty.
Q4Do I need an LLC to deduct business expenses?
No. A sole proprietor deducts ordinary and necessary business expenses on Schedule C without forming anything. An LLC changes your legal setup, not which costs are deductible, and it adds a Texas franchise report each year.
Q5I owe from last year and cannot pay it all. What can I do?
File on time, pay what you can, and ask about an IRS payment plan for the rest. Then set this year's estimates so the balance does not grow again. Penalty relief may also apply, depending on the year.