One of the joys of being self-employed is becoming responsible for self-employment taxes. Okay, clearly that was a joke. No one is thrilled to pay taxes especially when it is an automatic 15.3% your net earnings. Many clients are shocked the first profitable year in business to have the greatest gift Uncle Sam can give, a tax bill.
Self-employment taxes are the combination of the Social Security tax and Medicare tax. As previously mentioned, the total tax is 15.3% of your net earnings from self-employment. Just as if you were working for an employer, Social Security and Medicare taxes must be paid. No one who earns money through work is exempt from Social Security and Medicare taxes. When you work for someone else, you pay half of the employment taxes, and your employer pays the other half. There is a bright side. You get to deduct half of the employment taxes from your taxable income thereby reducing your federal tax liability.
Payments of self-employment taxes are generally due on the 15th of January, April, June, and October. The amount to be paid is based on calculations from Schedule SE. Vouchers for payments will be created when your tax return is prepared. It is important to keep the amount owed below $1,000 to avoid tax penalties.
Contact us to learn more about self-employment taxes.
Alexandria Louis Tax Solutions, LLC – (901)414-1751