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 calculated by taking all your businesses revenue and subtracting any costs 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 for the year, you are not subject to 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. Finally, send the Schedule SE to the IRS with your return.
The IRS instructions for the Schedule SE are a good source for understanding a number of special rules.
If you believe you have been incorrectly classified as an independent contractor, you can file a form with the IRS to correct this.