United States Tax Glossary for the Self-Employed

A plain-English guide to United States tax terminology. Whether you are filing your first self-assessment or managing ongoing IRS (Internal Revenue Service) obligations, this glossary covers the key terms every freelancer and sole trader should know.

How does tax work for self-employed Americans?: As a self-employed person in the USA, you pay two main federal taxes: (1) Self-Employment (SE) Tax and (2) Federal Income Tax — both on your net profi...
When does the US tax year start and end?: The US tax year for individuals follows the calendar year — January 1 to December 31. Your 2025 tax return covers all income earned between January 1,...
Who needs to file a Schedule C?: You must file Schedule C (Profit or Loss From Business) if you are a sole proprietor or a single-member LLC (taxed as a disregarded entity) and you ha...
What is Self-Employment Tax and how is it calculated?: Self-Employment (SE) Tax is the combined Social Security and Medicare tax that self-employed individuals pay. Unlike employees who split this cost wit...
Can I deduct half my Self-Employment Tax?: Yes — and this is one of the most important above-the-line deductions for self-employed individuals. You can deduct exactly half of your self-employme...
What are the federal income tax rates for 2025?: The 2025 US federal income tax brackets for **single filers** are: | Taxable Income | Tax Rate | |---|---| | $0 – $11,925 | 10% | | $11,926 – $48,475 ...
What is the Standard Deduction for self-employed individuals in 2025?: The Standard Deduction reduces your taxable income automatically — no receipts required. For 2025, the amounts are: - **Single:** $15,000 - **Married ...
What is Adjusted Gross Income (AGI) and why does it matter?: Adjusted Gross Income (AGI) is your total income from all sources minus certain 'above-the-line' deductions. For self-employed individuals, AGI is cal...
How do I complete Schedule C as a self-employed person?: Schedule C (Profit or Loss from Business) is where self-employed sole proprietors and single-member LLC owners report their business income and deduct...
What is the difference between gross income and net profit on Schedule C?: Understanding the difference between gross income and net profit is fundamental to filing Schedule C correctly. **Gross Income (Schedule C Line 7):** ...
How do quarterly estimated taxes work for the self-employed?: When you're self-employed, no employer withholds tax from your income. Instead, you must pay estimated taxes quarterly to avoid an underpayment penalt...
What is the Safe Harbor Rule for quarterly estimated taxes?: The Safe Harbor Rule is the simplest way to avoid underpayment penalties — pay enough during the year and the IRS will not charge penalties, even if y...
What is the penalty for underpaying quarterly estimated taxes?: If you don't pay enough in quarterly estimated taxes during the year, the IRS charges an underpayment penalty — even if you pay the full amount by the...
What counts as a deductible business expense on Schedule C?: To be deductible on Schedule C, a business expense must be: 1. **Ordinary** — common and accepted in your trade or business 2. **Necessary** — helpful...
What is the Qualified Business Income (QBI) deduction?: The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, allows most self-employed individuals and pass-through busine...
What is a Specified Service Trade or Business (SSTB) and how does it affect the QBI deduction?: A Specified Service Trade or Business (SSTB) is a business type where income is primarily from personal skills and reputation, as defined by IRC §199A...
How does a SEP-IRA work for self-employed individuals?: A SEP-IRA (Simplified Employee Pension Individual Retirement Account) is one of the easiest and most tax-efficient retirement accounts for self-employ...
What is a Solo 401(k) and how does it differ from a SEP-IRA?: A Solo 401(k) — also called an Individual 401(k) or Self-Employed 401(k) — is a retirement account for self-employed individuals with no employees (ot...
Which states have no income tax for self-employed individuals?: Nine US states have no state income tax on earned income, meaning self-employed individuals pay no state income tax on their Schedule C net profit: **...
How long must I keep tax records as a self-employed person?: The IRS has specific rules on how long you must retain tax records. The key principle: keep records as long as the IRS has time to audit your return —...