A number of people who work as allied healthcare professionals (i.e. medical billers and coders, medical transcriptionists) are employed by firms as independent contractors. According to the Internal Revenue Service (IRS), people who offer their services through a trade, business or profession where the resulting quality of the output is controlled by payer. Whatever or how much you’re earning, it will be subject to taxes, which in this case, is referred to as self-employment taxes. You are required by law to pay your taxes quarterly and to file an annual income tax return.
Computing your taxes. Two types of amount will be deducted from your paycheck each quarter: the tax withheld from your income, and something that’s called “self-employment tax,” the combination of Social Security and Medicare taxes (the IRS notes that the term is used to refer to Social Security and Medicare taxes). If you think about it, it’s basically the same as the SS and Medicare taxes deducted from your paycheck when you were still working as a full-time employee (if you ever did before going freelance).
However, before you go to your local IRS headquarters, you should find out first whether you had to file taxes. How?
– Is your net income amounting to $400 or above?
– If not, do you meet the requirements set forth by the Form 1040 instructions?
Here’s how to compute your net income:
Determine your net profit or net loss:
Business income – business expenses = + net profit/ – net loss
Interpreting the formula is simple. It basically means that if your expenses do not exceed the value of your income, then the result is a net profit (you will have to include it as part of your income in Form 1040). Otherwise, it’s a net loss, which you may deduct from your gross income on page 1 of your Form 1040.
If you do not fit the bill, you will have to check with Pub. 334 Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) to know how to compute for your taxes.
Steps in filing quarterly payments. Using estimate tax as a basis for filing your taxes works best for most work-from-home professionals and business owners. Check out Form 1040 ES, Estimated Tax for Individuals and find out which category/tax range you belong to, or whether you are required to file taxes. You would have to have the previous year’s annual tax return for information so you could complete the requirements of Form 1040-ES. More details here.
Filing your annual tax return. Just like the prior requirement, filing your annual tax return would have you filling out forms: either the Schedule C form or Schedule C-EZ form. You may find out your eligibility by taking note of the instructions found in the said forms.
Work-from-home professionals who use a part of their home as an office space can deduct the costs from their taxes, allowing them to save some money in rent and operational costs.
Being a dutiful tax payer may involve a bit of paperwork but it’s part of your obligations as a citizen of this country. Stay tuned for more tax-related tips and information here at Meditec.