The Labor Day holiday is a time to reflect on and celebrate the history of organized labor in the United States. Much of what we workers take for granted, from the five-day workweek to workplace safety to many of our employer-provided benefits, are thanks to the work of labor unions and their members.
Nowadays, however, many of us (including me) are our own bosses, often as solo workers. Many of us work full-time as sole proprietors. Others have side jobs to supplement their wage-paying work.
Being the boss of any type of one-person operation can be challenging. You wear many hats and have many responsibilities, including added tax considerations.
So as we approach Labor Day 2025 on Monday, Sept. 1 (which also is this week’s By the Numbers figure), here’s a quick look as some of the key tax tasks freelance workers face.
Tracking your earnings. You no longer get regular paychecks, or the pay stubs that keep a running total of your earnings and other financial data. You need to establish a professional, reliable, and thorough system to track all your earnings.
Yes, if you meet certain earnings thresholds, some of your clients will issue you a 1099 form early in the next year. For most independent contractors, this will be Form 1099-NEC, Nonemployee Compensation, and/or Form 1099-K, Payment Card and Third Party Network Transactions.
The One Big Beautiful Bill (OBBB) Act has dramatically increased the earnings thresholds that trigger these documents, which when issued go to both you the earner and the Internal Revenue Service. But you need to keep track of all your earnings, especially for those jobs where you don’t make enough to trigger tax documentation.
Determining your official business type. Entrepreneurs have several business entity choices. It’s not a decision to make lightly. How your new business is officially established will affect your tax filing and payment requirements.
There are five common entities, each with advantages and challenges. Many new entrepreneurs, especially individuals whose business is a side gig, opt to operate as a sole proprietorship. Here, you file Schedule C to report your business income and expenses as part of your annual personal Form 1040 filing.
But also check out the others — partnership, C corporation, S corporation, and LLC — to make the appropriate choice.
Knowing all the taxes you owe. There are a wide range of business taxes. What you must pay and how to do so varies.
The biggie, especially for a single-person operation, is the same one all workers face, the income tax. To ensure you pay the correct amount of tax on your earnings in a timely manner, you’ll likely need to make quarterly estimated tax payments.
Then there’s the self-employment, or SE, tax. This is how individuals who work for themselves pay into the Social Security and Medicare programs.
Generally, you must pay SE tax and file Schedule SE (Form 1040 or 1040-SR) if your net earnings from self-employment are $400 or more. The one bit of good news here is that you can deduct 50 percent of SE tax you owe from your overall income.
If your business grows beyond just you, when you hire employees you’ll have to take care of the associated payroll taxes. Employment taxes include workers’ Social security and Medicare taxes and your employer match, as well as federal and state income tax withholding, and federal unemployment (FUTA) tax.
And don’t forget about state business requirements. This includes not just state (and sometimes local) tax filings, but also licensing and often employment requirements.
Planning for retirement. In the early stages of your new businesses, you’re not thinking of retiring, but you should be. As soon as you’re making enough to keep your business and personal needs covered, consider putting some into a self-employed retirement account.
Two relatively easy options are available, an IRA or a solo 401(k).
You can open either a traditional or Roth IRA. A Roth doesn’t offer any immediate tax deduction like a traditional IRA, but it will grow tax-free and is not subject to mandatory withdrawal, or required minimum distribution, rules.
For the 2025 tax year, you can put up to $7,000 in either type of IRA, or $8,000 if you’re 50 or older.
When your business really takes off, look into a solo 401(k). This self-employed retirement plan allows elective deferrals plus an “employer” profit-sharing contribution, capped at $70,000 in 2025.
I hope these tax tips help with your new business. But don’t worry about them until Tuesday, and enjoy your Labor Day holiday.
You also might find these items of interest:
- Being the boss tax basics
- Deciding whether to convert your hobby to a business
- Added summer income means more tax considerations
This post also appeared on my Don’t Mess With Taxes Substack.
Blog Changes Ahead! In case you missed my announcement when you clicked over to the ol’ blog, here it is again. Life is change, regardless of whether we want it. Nov. 14, 2025, would have marked the 20th anniversary of my tax blog Don’t Mess With Taxes. I had planned to scale back my blogging at that point, or at least by the end of the year. But Typepad is shutting its doors on Sept. 30. So, I’m exploring transfer options. Hopefully, the change will be easy and seamless and you’ll never know it happened. Yeah, a blogger can dream! Whatever happens, it’s been a great two decades. Thanks for being a part of it! |
