Throughout the Covid-19 pandemic, a record-shattering number of workers left traditional W-2 employment to open their own small businesses. The Great Resignation happening around the country fueled an already growing self-employment small business demographic with the small business community sharply increasing over the last two years.
Movement to Self-Employment
We are living in truly the age of the entrepreneur. Americans are taking greater control over their employment destinies. Those in traditional employment realized the benefits of self-employment during the pandemic. From working from home (or anywhere) to having more time with the family and flexible working hours (to name just a few), there has been a national awakening to the benefits those in the self-employment demographic have enjoyed for decades. Some of the movement to self-employment was involuntary due to the pandemic’s impact on the traditional workforce. However, many individuals made the conscious choice to take the leap out on their own.
Self-Employment Data
According to Axios, almost 5.5 million applied for small business licenses just last year — a record 53 percent jump from 2019 before the pandemic. In fact, data compiled by the Pew Research Center indicated self-employment had rebounded to pre-pandemic numbers as recently as last November. Self-employment dropped to a low of 12.7 million during the pandemic. However, the number bounced back to nearly 15 million in November 2021. This is not surprising given the entrepreneurial spirit and resiliency of our unique small business community.
Self-Employment Responsibilities – Taxes
Along with the benefits of self-employment, new entrepreneurs also need to understand the responsibilities — including paying quarterly taxes they may not be used to — are important to consider. If you are one of these newly formed small businesses, it is imperative you review these new tax and regulatory requirements to prevent penalties later down the road. From paying quarterly taxes and complying with local and state filing laws, ensure you are in compliance.
The Internal Revenue Service (IRS) has already warned the 2021 tax return filing season will come with delays to processing returns. Now is the time to prepare and compile your documents, and review key, updated tax policies, so there are no further delays in processing or receiving any expected refunds.
2021 Tax Filing Updates
- The tax filing deadline is Monday, April 18, 2022, for most states and April 19, 2022 for Massachusetts and Maine.
- You find the following under the updated tax system:
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- A lower individual rate, which is what most self-employed small businesses file.
- An increase in the standard deduction, which is $12,550 for single filers and $25,100 for married couples.
- There are reductions or eliminations of specific deductions such as for moving expenses or the unlimited state and local tax deductions known as SALT deductions, which capped at $10,000.
- A streamlined, standard home office deduction is available.
- The standard mileage rate for business use of an automobile is 56 cents per mile for 2021 tax returns — down from 57.5 cents last year. (The rate for the 2022 tax year is set at 58.5 cents per mile.)
- Limits for retirement plan contributions such as SEPs, IRAs and 401(k) plans may have changed for your situation.
You Are Not Alone
I always like to say, you are not alone. This is because if you are a self-employed small business owner, then you are not. You are an important part of the small business community. Bookmark and visit NASE.org, and other government resources like the IRS.gov and SBA.gov – along with local and state organizations for resources and tools on filing tax returns.
We also prepared a series of one-minute tax video resources, the NASE Minute. Please view them as resources for free information on filing your returns.
In addition to short videos about tax season, we also have a host of other videos on business formation to general guidance and NASE advocacy efforts as your voice in Washington, D.C. fighting for your policy priorities.
NASE Minute on Tax Season
https://www.nase.org/business-help/nase-minute/what-can-i-deduct-as-a-small-business-owner
https://www.nase.org/business-help/nase-minute/i-need-a-cpa
https://www.nase.org/business-help/nase-minute/child-tax-credit
https://www.nase.org/business-help/nase-minute/hire-your-kid-and-save-thousands!
https://www.nase.org/business-help/nase-minute/are-quarterly-estimated-tax-payments-really-needed
You can visit the entire NASE Minute collection here.
For our current members and new ones wishing to join us, we offer real time tax and business advice through our robust Ask the Experts feature.
Final Comments to the Small Business Community
Good luck this tax season. In addition, if you still cannot file your return on time, apply for an extension to avoid any penalties.
As always, please reach out if we can help.
Best,
Keith Hall
