Self-employment taxes refer to the taxes that self-employed individuals are responsible for paying on their income. These taxes include Social Security and Medicare taxes, which are collectively known as FICA (Federal Insurance Contributions Act) taxes.
As a self-employed individual, you are responsible for paying both the employer and employee portions of FICA taxes. The current combined rate for these taxes is 15.3%, with 12.4% going toward Social Security and 2.9% going toward Medicare. However, you may be able to deduct a portion of these taxes on your federal income tax return.
In addition to FICA taxes, self-employed individuals are also responsible for paying federal income taxes on their self-employment income. The amount of income tax you owe will depend on your income level and deductions. You can use the IRS’ Form 1040 to report your self-employment income and calculate the income taxes you owe. It is worth noting that you might be eligible for some deductions and credits which can lower your tax bill.
To report your self-employment income and calculate your self-employment taxes, you will need to file Schedule C (Form 1040), Profit or Loss from Business, with your federal income tax return. This form will ask you to provide information about your business. Include your business name, business address, and the type of business you operate. You will also need to provide information about your business income and expenses to calculate your net profit or loss. You need to keep records of all your income, expense, also estimated tax payments for the year. It would be a good practice to keep a track of business expenses that qualify for a deduction from your income
In addition to federal taxes, you may also be responsible for paying state and local taxes on your self-employment income. These taxes can vary depending on the state or local jurisdiction in which you operate your business. Check with your state and local tax authorities to determine what taxes you need to pay.
It is also worth mentioning that self-employed individuals are responsible for making estimated tax payments throughout the year. As self-employed, you will not have taxes withheld from your income like traditional employees do, so you need to make estimated tax payments four times a year in April, June, September, and January to avoid penalty.
In conclusion, self-employment taxes can be somewhat complicated, but by keeping accurate records, understanding the tax laws and regulations, and consulting with a tax professional, you can make sure you are paying the correct amount of taxes and taking advantage of any deductions or credits to which you may be entitled. Self-employment can be a great way to earn income and be your own boss, but it also comes with additional responsibilities, including the responsibility to accurately report your income and pay taxes on time.
Disclaimer: We’re not doctors, lawyers, or tax advisors, we’re campaign consultants trying to help you on your political journey. Before you take action based on any of our content, be sure to check with a professional who can give you advice for your unique situation!