Determine your net income (profit)
Once you determine you’re self-employed and had income, you need to determine your net profit from the business. This is done by taking all your businesses income and subtracting any expenses or losses. Some businesses have a profit and loss statement that they generate throughout the year.
Generally, if your business(es) had a net loss (your expenses are more than your income) for the year, you aren’t subject to self-employment (SE) tax.
Calculate your SE Tax
Once you determine the net profit from all your businesses, you’re ready to compute your SE tax, using IRS Schedule SE, (IRS Form 1040) Self-Employment Tax. The form will walk you through the calculation for the SE tax, since different lines are used for different types of income. The schedule also helps you calculate the deduction you’ll take for the one-half of the SE tax. This goes on the front of your IRS Form 1040 tax return in the “adjustments” section. For tax years after 2017 you will also need to report the amount on Form 1040 Schedule 1, part II. Finally, send the Schedule SE to the IRS with your return.
The IRS instructions for the Schedule SE are a good source for understanding the special rules.
If you believe you’ve been incorrectly classified as an independent contractor, you can file a form with the IRS to correct this.