A lot of people quit their jobs to start their own business because they assume they can make more money that way. While it is true that self-employed people typically earn more money at first, these individuals also pay a lot more in taxes every year than traditional workers pay. Employees only have to pay for half of their taxes because the government pays for the other half. Self-employed people have to take care of everything. Before you get shell shocked by the site of your tax debt next year, you need to have a clear understanding of self-employment tax. Here is some information that should help you file for taxes in the future.
Calculating Self-Employment Tax
Self-employment tax was recently reduced from 15.3% of a person’s income to 13.3%, which means that you will have to pay roughly 1/7 of your income to the government at the end of the year. You can save some money by deducting the cost of fuel, business equipment, rent, and utilities from your taxable income, but you’ll still need to pay a decent chunk of your company profits to the IRS no matter what.
Filing Self-Employment Tax
If you have to file taxes on your own, you will need a Schedule C, Schedule SE, and Form 1040. This will allow you to calculate your profit/loss, self-employment tax, and overall tax payment at the first of the year. You could have an accountant do this for you if you are not confident about your filing abilities. That part is up to you in the end.
Paying Self-Employment Tax
If you find yourself dealing with self-employment tax debt, you will have to come up with a way to pay the government the money you owe. That’s where the advisors at BC Tax can help you out. One of our associates can look at your situation to determine how to make your tax payments as low as possible. Then all you have to do is commit to the payments you agree to. You’ll be out from under your self-employment tax in no time.