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Filling out Self Assessment Employment Forms, a 2006 Example
from: EmploymentPulse.comIn Great Britain (UK), the self-employed must file what is known as Self Assessment Employment Forms. As of 2006, self-employed individuals in the United States (US) must file form 1040-ES every quarter to pay their estimated taxes for the coming year, as determined by filling out estimation forms or based upon their contribution from the year before.
When filling out the self assessment employment forms, in 2006 many people found that if they were filing for the very first time, that there was a great deal of guess work that goes on that first year. Because you subsequent filings are based upon that first one, it makes sense to claim as many deductions you can that first year as possible.
As such, it is imperative that everything appear and actually be on the up and up. You certainly don't want to mess with the IRS, but you are also on the honor system in a sense. That's why the Self assessment employment forms from 2006 took both the amount the self employed worker planned to spend on the business in the given year and checked that against the amount money he or she was likely to make. If this was less than the previous year, and no tax was owed according to the self assessment employment forms, the 2006 returns were far more likely to be scrutinized, even if the odds were that it wouldn't become personal.
Self employment is considered to be one of the most likely areas of non-compliance with tax law. As such, of the nearly 750,000 tax forms given a second look by the IRS, nearly all these were simple correspondence cases where the matter was taken care of with a simple letter. Of the over 300 million individual and business tax forms submitted in 2006, only about 225,000 were investigated closely or personally by an IRS official.
The labor force in the US is such that despite the obvious advantages to self employment in a country that prides itself on its entrepreneurial spirit must be offset by significant financial disincentives, not the least of which is the exorbitant rates charged by insurance companies. The doubled tax burden is also problematic for many, especially when just starting out.
That said, the last thing you want to deal with is guff from the IRS. However, it is in your best interest to heavily invest your earnings back into the business and start slow enough to create a low earnings precedent on your self assessment employment forms. 2006 was a very typical year for the self employed, in that they were far more rigorously scrutinized then those who went to jobs. You need to be honest, but there are definitely ways to operate that are more advantageous than others. Consultation with an accountant can be very helpful and profitable.
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