Many newly self-employed individuals get quite a shock when they start planning for income taxes. Here’s what you need to know.

You probably remember your surprise when you got your first paycheck from your first job in high school or college. Who is this FICA, you may have thought, and where is all of my money going?

Taxes and other payroll deductions are just a part of your financial life now, and you understand where it all goes.

If you’re planning to be self-employed sometime in 2014, though, you have another IRS education coming your way. Here’s what you can expect.

An Annual Tax Return

You’re still required to file one of these every year, though you’ll have to get acquainted with some new forms and schedules, particularly the Schedule C. This is where you’ll account for your income and expenses and declare a profit or loss.

You may be able to complete a Schedule C-EZ instead of a Schedule C. This is a less complex form that you can submit if you:

• Have expenses of $5,000 or less
• Don’t have employees
• Run a business that doesn’t have inventory, and
• You’re not depreciating any property or deducting the cost of your home.

Estimated Taxes

As an employee of a company, you’ve already been paying estimated taxes, those deductions for Medicare, Social Security, federal and state income tax that come out of your check every payday. You’ve just been paying it a little at a time, so it doesn’t seem that overwhelming.

Your first estimated tax payment might. That’s a good thing – it means you’re already generating enough income to warrant a sizeable tax bill. But it also means that you have to come up with a chunk of money four times a year to pay your estimated taxes. You’re basically just keeping up with your counterparts in the full-time workforce.

The trick lies in figuring out how much of your income will be owed in taxes every three months. There’s no hard-and-fast rule – that’s why they’re called estimated taxes. We can help you devise a formula that will work for you.

The IRS offers a form that contains instructions for paying estimated taxes, worksheets, current rates schedules and vouchers for submitting your payments: the 1040-ES.

Self-employment Taxes

Often referred to as SE tax, this financial obligation meets your requirements for submitting Medicare and Social Security payments. When you were employed by a company, your employer contributed a portion of it. Now you must pay all of it.

Your Business Structure

A decision that will have tremendous bearing on your taxes is the type of business structure you choose. If you’re just going off on your own, this will most likely be a sole proprietorship. More complex business structures include partnerships, corporations and Limited Liability Companies (LLC).

If you’re at all uncertain about which is the best fit for your new venture, by all means contact us. We’ll help you sort it out and work with you on your new requirements for tax planning, preparation and filing.