Being self-employed in New Mexico comes with its own set of responsibilities, especially when it comes to taxes. Navigating the tax landscape can be daunting, but understanding the basics can help you manage your finances more effectively. This guide will walk you through the essentials of self-employed taxes in New Mexico, from filing requirements to deductions and more.
Self-employed taxes refer to the taxes that individuals who work for themselves must pay. Unlike traditional employees, self-employed individuals are responsible for both the employer and employee portions of Social Security and Medicare taxes. This is often referred to as the self-employment tax.
In New Mexico, self-employed individuals include freelancers, independent contractors, and small business owners. These individuals must report their income and pay taxes on it, just like any other worker. However, the process and requirements can differ significantly from those who are employed by a company.
Understanding the tax obligations for self-employed individuals is crucial to avoid penalties and ensure compliance with state and federal tax laws. Knowing what taxes you owe and when to pay them can also help you manage your cash flow more effectively.
At the federal level, self-employed individuals must file an annual tax return if their net earnings from self-employment are $400 or more. This involves completing Schedule C (Profit or Loss from Business) to report income and expenses, and Schedule SE (Self-Employment Tax) to calculate the self-employment tax owed.
The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. It's important to note that half of this tax is deductible when calculating your adjusted gross income, which can help reduce your taxable income.
In addition to federal taxes, self-employed individuals in New Mexico must also pay state income taxes. New Mexico has a progressive income tax system with rates ranging from 1.7% to 5.9%, depending on your income level. Self-employed individuals must report their income on the New Mexico PIT-1 form.
It's important to keep accurate records of all income and expenses throughout the year to ensure accurate reporting. This includes maintaining receipts, invoices, and any other documentation related to your business activities.
Self-employed individuals are typically required to make estimated tax payments throughout the year. These payments help cover both federal and state taxes and are usually made quarterly. Failing to make these payments can result in penalties and interest charges.
To calculate your estimated tax payments, you can use Form 1040-ES for federal taxes and the New Mexico Estimated Tax Worksheet for state taxes. It's crucial to stay on top of these payments to avoid any surprises at tax time.
One of the benefits of being self-employed is the ability to deduct business expenses from your taxable income. Common deductible expenses include office supplies, travel expenses, advertising costs, and professional fees. These deductions can significantly reduce your tax liability.
To qualify for a deduction, the expense must be both ordinary and necessary for your business. Keeping detailed records and receipts is essential for substantiating these deductions in case of an audit.
If you use part of your home exclusively for business purposes, you may be eligible for the home office deduction. This deduction allows you to deduct a portion of your rent or mortgage, utilities, and other home-related expenses.
There are specific requirements for claiming the home office deduction, so it's important to understand the rules and calculate the deduction accurately. The IRS provides a simplified method for calculating this deduction, which can make the process easier.
Business mileage is one of the most valuable and commonly used deductions for self-employed individuals and independent contractors. The IRS allows you to deduct the miles you drive for work-related purposes, including client meetings, job sites, and business errands.
For 2025, the business mileage rate is worth 70 cents in deductions, adding up quickly to significant tax savings. Whether you’re delivering for a gig platform, running a small business, or freelancing, keeping accurate mileage records is key to claiming this deduction. The IRS requires detailed logs of your trips, including dates, destinations, and purposes. Tracking your miles not only helps you reduce your taxable income but also ensures you stay compliant with IRS rules and avoid audit risks. With tools like Everlance, you can automate your mileage tracking and generate IRS-compliant reports, taking the guesswork out of this essential tax deduction.
Keeping organized financial records is crucial for self-employed individuals. This includes tracking income, expenses, and any other financial transactions related to your business. Using tax filing software or hiring a professional accountant can help streamline this process.
Regularly updating your records and reconciling your accounts can prevent errors and ensure that you're prepared for tax time. It's also helpful to set aside time each month to review your financial statements and make any necessary adjustments.
Tax laws and regulations can change frequently, so it's important to stay informed about any updates that may affect your tax obligations. Subscribing to tax newsletters, attending workshops, and consulting with a tax professional can help you stay up-to-date.
Being proactive about understanding tax changes can help you plan effectively and avoid surprises. It can also ensure that you're taking advantage of any new deductions or credits that may be available.
Managing self-employed taxes in New Mexico requires careful planning and attention to detail. By understanding your tax obligations, taking advantage of available deductions, and keeping accurate records, you can minimize your tax liability and ensure compliance with both federal and state tax laws. Whether you're new to self-employment or have been running your business for years, staying informed and organized is key to successful tax management.
Download Everlance to get accurate, automatic mileage reports, expense tracking, tax filing, and more
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Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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