Tax Help for Self-Employed People and Freelancers

Working for yourself changes your tax life more than most people expect. No one withholds tax from your pay, you owe both halves of Social Security and Medicare tax, and you decide which expenses are fair to deduct. Freelancers, consultants and independent contractors in Naperville, Aurora and across Chicagoland, and clients we work with elsewhere, can keep more of what they earn by understanding a few rules early.

How self-employment tax works

If your net earnings from self-employment are $400 or more, you file Schedule SE. The tax applies to net profit multiplied by 92.35 percent, and you deduct the employer-equivalent half of the tax when figuring your adjusted gross income. An extra 0.9 percent Medicare tax applies to earnings above $200,000 for single filers ($250,000 joint, $125,000 married filing separately). Self-employment tax is separate from income tax, which is why a freelancer with a modest profit can still owe more than expected. See the self-employment tax guide.

Quarterly estimates and safe harbors

Generally you must pay estimated tax if you expect to owe $1,000 or more when you file. You usually avoid an underpayment penalty by paying at least 90 percent of the current year's tax or 100 percent of last year's tax, whichever is smaller, though higher-income taxpayers have special rules. If your income comes in unevenly, the annualized method on Form 2210 can lower or erase the penalty. Illinois taxes net profit at a flat 4.95 percent for 2025 and uses its own estimated payment form on the same quarterly schedule. Read the estimated taxes guide and the page on the estimated tax penalty.

The 20 percent deduction and entity choices

The qualified business income (QBI) deduction can reduce taxable income by up to 20 percent of qualified business income. It is permanent, and starting in 2026 there is a minimum deduction of $400 for people with at least $1,000 of qualified income from an active business. Income thresholds before limits apply are $197,300 (single) and $394,600 (joint) for 2025, and $201,750 and $403,500 for 2026. Certain service fields, such as health, law, accounting and consulting, lose much of the deduction above those levels. When profits grow, some freelancers consider an LLC taxed as an S corporation, which requires reasonable pay through payroll. See S corporation taxes and business formation.

Deductions people miss

Expenses must be ordinary and necessary for your business, and personal costs are split from business costs. Common items include:

• Home office. The space must be used regularly and exclusively for business. The simplified method is $5 per square foot up to 300 square feet. See the home office guide.
• Vehicle. The standard mileage rate is 70 cents a mile for 2025 and 72.5 cents for 2026. Keep a log, because estimates fail in an audit. See vehicle and mileage deductions.
• Equipment and software. Items costing $2,500 or less per invoice item can often be deducted at once under the de minimis safe harbor. The Section 179 limit is $2,500,000 for 2025, and larger purchases may qualify for bonus depreciation.
• Health insurance and retirement. Self-employed health insurance premiums are deductible within limits, and a SEP IRA, SIMPLE IRA, solo 401(k) or defined benefit plan can shelter income. A SEP can be opened up to the due date of your return with extensions, while a SIMPLE IRA generally must be set up by October 1. For 2026 the overall limit for defined contribution plans is $72,000.
• Professional costs. Training that keeps your skills current, licenses, insurance, bookkeeping, tax preparation and business-use phone and internet.

More detail is in the retirement plans guide and the health insurance guide.

1099s and what the IRS sees

Clients and payment platforms report to the IRS. Form 1099-NEC is generally required for payments of $600 or more made in 2025, and the threshold rises to $2,000 for payments made after 2025. Form 1099-K is required for payment app and marketplace payments over $20,000 and more than 200 transactions. You must report all income whether or not you receive a form, so reconcile every 1099 to your books. See Form 1099-NEC and 1099-K.

Red flags and records

A business that reports losses year after year, a vehicle used 100 percent for business without a log, or round-number expenses invite questions. If you cannot show a profit motive, the activity can be treated as a hobby, which limits deductions. A client that controls when, where and how you work may be treating you as a contractor when the facts point to an employee; Form SS-8 lets the IRS decide, and a preparer can help you weigh that step.

Use a separate business bank account and card, keep mileage and receipts, save invoices and 1099s, and close the books monthly. Bookkeeping can take that off your plate.

How we can help

We prepare Schedule C returns, set up estimated tax schedules, review entity options and retirement plans, and respond to IRS notices. See individual tax preparation and tax planning. This page is general information, not advice for your situation.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.