If you are a self-employed individual, the only shareholder in an S Corporation or a single member LLC, the Low Income Taxpayer Clinic (LITC) at Legal Aid may be able to provide you with federal tax assistance and to refer you to others for free assistance with tax preparation and business development. Legal Aid provides free legal services and direction to people, not business entities, whose income is too small to hire a private attorney.
Self-employed individuals have several tax obligations. The self-employed are required to file an annual return and pay estimated tax on a quarterly basis. A penalty may be assessed by the Internal Revenue Service (IRS) if taxes are not paid throughout the year. The IRS has an Electronic Federal Tax Payment System (EFTPS) that makes it easier for self-employed taxpayers to make quarterly payments by allowing a taxpayer to schedule automatic estimated payments up to one year in advance. The IRS also provides a Self-Employed Individuals Tax Center that can be accessed for help at https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center.
Self-employed individuals also must pay a self-employment tax, in addition to income tax if net earnings are $400 or more. Self-employment tax primarily is a Social Security and Medicare tax for individuals who work for themselves. The tax rate is 12.4% for Social Security and 2.9% for Medicare taxes. It always is a good idea to review the IRS instructions for Schedule SE (self-employment) before preparing and submitting IRS Form 1040. The Social Security Administration uses the information from Schedule SE to figure the self-employed individual’s benefits under the social security program.
Legal Aid’s LITC can assist self-employed individuals with IRS tax problems. Legal Aid can negotiate with the IRS to obtain a reasonable payment plan and/or offer in compromise that may reduce your tax burden; if your current expenses exceed your income, you may qualify for currently not collectible status. When your case must go to court, we can represent you.
After receiving the appropriate guidance, the low-income entrepreneur can establish and maintain his/her own job when there are few labor market options, create wealth and economic security, and achieve upward economic mobility demonstrating success among the 3.6 million existing small businesses.
Legal Aid’s LITC does not prepare and file tax returns. A list of free tax preparers is posted on our website at www.lasclev.org/taxpreplocations. And, learn more about Legal Aid’s tax law practice: www.lasclev.org/get-help/special-programs/low-incometaxpayer-clinic