Did you just start your own business or become self-employed? First things first, I think congratulations is in order! However, there are many things to consider when you’re working for your self, one of them is of course taxes and more specifically self-employment tax. For those new to this concept there are a few things that you need to know, self-employment tax has been put in place to cover social security and medicare totaling 15.4% of your income earned for 2014. For previous years, the rate varies. Anyone who makes under $177,00 will pay this tax, however if your earning over that amount you’ll have to pay an additional .09% medicare tax on income earned.
Something else to consider:
"You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax." (From the IRS.gov website)
Anyone earning over $400 must file for self employment tax unless you’re a Church Employee, in that case you must file if you earned over $108.28.
So you have set aside every month, or quarter, an amount that equals in what you owe in Self-Employment taxes, what do you do next? You'll need form 1040-ES in order to complete this process.
No one said that being self-employed was easy but these are some of the things you need to be aware of when filing and preparing your taxes for this and next season.
For complete information about self-employment tax please visit the IRS.gov website by clicking here
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