Jun 24, 2026
Being your own boss can be incredibly rewarding. But it also comes with a lot of responsibility, and when something goes wrong, there’s only the boss — that’s you! — to blame.
One aspect of self-employment that can trip you up is doing your taxes. If you’re new to self-employment, you may want to save money by doing your own taxes. But making a mistake when it comes to your filing can cost you — in some cases, a lot more than using a professional tax preparer might have.
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Here are some of the biggest tax pitfalls for self-employed people, and how to avoid them.
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Estimated taxes
Imagine Jess, who made the leap into self-employment five years ago as a freelance photographer. She’s been doing her taxes herself, using tax software, but she wasn’t aware that, as a self-employed person, she was required to pay estimated taxes quarterly.
Now, she’s gotten a bill with a $9,000 penalty from the IRS.
It’s a huge hit, and once Jess talked to a tax professional, she realized she was also missing out on deductions she could have made for her business and setting up a SEP IRA.
According to the IRS, one of the common mistakes that small business owners make when it comes to taxes is underpaying estimated taxes.
If you’re self-employed, you typically have to pay quarterly estimated taxes. Estimated taxes have to be paid throughout the year, in the same way that an employer withholds taxes from employees’ paychecks and remits them to the IRS.
Estimated taxes pay your income tax and other types of taxes such as self-employment (SE) tax, which “is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners,” the IRS says.
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Like the imagined scenario of photographer Jess, if you don’t pay enough in your estimated payments, you could face a penalty.
“Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller,” according to the IRS.
You’ll also face penalties for late quarterly payments, even if you get a refund on your tax return.
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Other errors small business owners make
For small business owners who have employees, another error that can cost you is not dealing with depositing their taxes correctly.
If you have employees, you must deposit the taxes you’ve withheld, and your share of those taxes as the employer, using electronic fund transfers. “If those taxes are not deposited correctly and on time, the business owner may be charged a penalty,” the IRS says.
Another big mistake for self-employed people and small business owners is not keeping your expenses separate.
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Setting up a bookkeeping system that keeps your personal expenses out of the mix will be a big help when it comes to figuring out your taxes.
The IRS notes that while it can “be tempting to use one credit card for all expenses especially if the business is a sole proprietorship,” this can cause accounting headaches.
Not only can it be difficult to track what’s what, it could lead to mistakes on your deductions, “and become a problem if the taxpayer or their business is ever audited,” the IRS says.
It’s also important to get familiar with the deductions you can make as a self-employed person. These deductions include your home office, your self-employment tax, retirement plan contributions, health insurance premiums and vehicle use. There’s also the qualified business income (QBI) deduction, which many sole proprietor businesses may be eligible for.
It’s a lot to become familiar with. If you are new to being self-employed, or you’re not sure you’ve got a handle on taxes, even after a few years of being your own boss, it may be worth reaching out to a tax professional.
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Rebecca Payne has more than a decade of experience editing and producing both local and national daily newspapers. She's worked on the Toronto Star, the Globe and Mail, Metro, Canada's National Observer, the Virginian-Pilot and Daily Press.
