Byline IRS Form 1040-ES Made Easy

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In today's video, I'm going to walk you through how to fill out schedule SE, which is used to calculate and report self-employment taxes. As a self employed individual, you'll file Schedule SE with the IRS, along with your Form 1040, or other personal income tax return. I'm Priyanka Prakash, senior staff writer and small business expert at Fundera. Sole proprietors, partners in a partnership, and members of an LLC who make at least $400 per year in self- employment earnings have to pay self employment taxes to the IRS to cover their Social Security and Medicare tax obligations. Schedule SE is where you calculate your self employment taxes. Okay, let's get started with the top of the form where you'll type or write your name and social security number. I'll be filling out this form for a fictional business ABC Bakery owned by Betty Business. Keep in mind that before completing schedule SE you'll need to calculate your self employment earnings for the tax here. You can calculate and find this in one of four places depending on what type of business entity and what type of earnings you have. If you have a sole proprietorship or a single member LLC, you'll refer to line 31 of Schedule C. If you are a partner in a partnership, or you have a multi-member LLC, you'll refer to line 14 of Schedule K-1. Refer to our Schedule K-1 video for instructions on how to fill out that form. If you are a farmer with self-employment income, you'll refer to line 34 of Schedule-S. And finally, if you have both self-employment income and worked for someone else during the tax year, you'll also refer to your W-2 form to find out your wages that were subject to Social Security and Medicare tax. Keep the appropriate forms in front of you when completing Schedule SE. And remember that if you own several businesses, you'll need the total self employment earnings from all of the businesses combined to total up all of your self employment earnings, and file only one Schedule SE. The flow chart that you see on page one of schedule SE helps you determine whether you need to fill out short a Schedule SE or long schedule SE. In most cases, if you're a full time business owner or if you only made self employment income this year, you can stick to short Schedule SE. If you made self employment income and worked as an employee for wages or a salary, then you'll need to use long Schedule SE. Let's begin with Section A of short Schedule SE. Lines one A and one B are for special types of self employment income that farmers might receive. So if you're not a farmer, you can skip down to line two. Line two is where you note the amount of self employment earnings that you made for the tax year, which we mentioned before can typically be found on your Schedule C or Schedule K-1. In this example, let's say that Betty Baker had $100,000 of self employment earnings as reflected on her schedule SE. Bring the amount in line to down to line three, adding in amounts from lines one in one B if either of those apply to you. Next in line four multiply the number in line three by 0.9235. In this example that gives us 92,350. You're doing this multiplication to get your net self employment earnings, which is just a portion of your self employment earnings that's subject to self employment taxes. If the result in line four is less than $400, then you don't owe any self employment taxes and don't need to fill out Schedule SE. If the amount is $400 or more, then keep going. On line five, calculate your self employment taxes by multiplying by the appropriate percentage. In this example, the self employment earnings are less than $132,900. So I'm going to multiply the amount in line four by 0.153. That gives us $14,130. You should report this amount on Form 1040. In line six, divide your self employment taxes in half. In this example, dividing the tax result in line five in half gives us 7065. You should report this amount on schedule one. On form 1048 deduct this amount on your tax return. Okay, moving on to page two, where you should put in your name and social security number again, so the IRS properly tracks your paperwork. If you're a full-time business owner, or if you only made self employment earnings for the tax year, you don't have to worry about long Schedule SE but just for purposes of this video, we're going to fill out this section and we'll describe some of the differences between long and short schedule SE part one here in Section B. Long Schedule SE is just like a slightly longer more complicated version of short Schedule SE. Each line here generally will match up with what we had in short schedule SE. As I showed above, you would skip lines one A and one B unless you're a farmer and go right to line two where you'll note your self employment earnings. In this example that was $100,000. In line three, add up what you have. So for line A multiply the result in line three by 0.9235. That gives us $92,350. In this example line four B refers to optional ways to calculate self employment earnings, which we'll discuss in a moment. If those don't apply to you simply bring down the total from line four A to line four. Lines five a and five B are about church employee income and you can skip those if they don't apply to you and just bring down the total to line six. In lines eight eight through eight C put in the amount of wages and tips that you received throughout the tax year which are subject to Social Security and Medicare taxes. This is the most important part of the forum for folks who had both self employment earnings and worked as an employee. Filling out this part correctly ensures that you don't overpay your Social Security and Medicare taxes. Let's say in this example that along with owning her bakery, Betty Baker also worked as an employee for another business and made $50,000 in Social Security wages. I leave the rest blank because Betty did not receive any unreported tips or other wages. Adding up what I have in lines eight A through eight C gives us 50,000. Then subtract line eight D from line seven, which in this example gives me $82,900. Line 10 tells you to multiply the smaller of line six or line nine by 0.124. In this example, line nine is smaller and multiplying $2,900 by 0.124 gives me 10,284/ Multiply what you had in line six by point 0.29, which in this example gives me 2,704. Finally, you add up lines 10 and 11 to get your total self employment tax in line 12. The answer in this example is $12,009 84 for Betty Baker of ABC bakery. As we did for the short schedule SE, you can claim a deduction for half of your self employment taxes. So dividing this number in line 12 by half, gives me 6,492. As I mentioned earlier, part two of Section B has to do with optional methods of calculating your self employment earnings. These optional methods can generally be used if you have self employment earnings less than 5,891 for the year, or if you had particular kinds of farm income or if you experienced a loss of earnings throughout the year. That said using one of these optional methods can also increase your self employment taxes. So make sure you talk to a tax professional before going this route. And that's how you fill out schedule SE. When you're done, make sure that you attach a copy of Schedule SE to your form 1040 on your personal tax return and submit them to the IRS by the tax return deadline which is April 15. For most taxpayers. 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