Taxes and the Self Employed

[dollardaze]

If you own a small business, you may have a few questions about paying taxes, Social Security and Medicare. Maybe this bit of information will help you to better understand what is expected of you, and also give you a couple of ideas of deductions that you are allowed, that you were not previously aware of.


If you have a small business and also have a job with another company, you may be wondering if you need to pay Social Security and Medicare taxes on your income from your small business since you are already paying those through your employer. This depends on the size of your income, as you only have to pay Social Security tax on the first $97,000 that you make. However, you must pay Medicare taxes on all of your earned income.

If you have employess working for you in your small business, when hiring take into consideration, the amount of taxes you will have to pay for each employee. The business owner pays half of the Social Security taxes and Medicare taxes for each employee. You will need to recoup this loss of revenue by not over-paying your employees.

Social Security and Medicare taxes for the self-employed totals 15.3% of your income. You can deduct half of that amount when you figure out your adjusted gross income.

The self-employed taxpayer may be able to deduct different expenses which are business related. This includes the cost of any traveling required by your business, any office supplies you purchase, rent of an office, telephone costs, and also the business use of your car.

If your business is run out of your own home, you may be able to qualify for the home office deduction. You can take a depreciation deduction for assets you use in your business, such as a computer, printer or other equipment that you use for that business.

As a self-employed taxpayer, be sure that you check for deductions such as: 50% of self-employment tax, also 50% of the cost of business related meals and entertainment, and any attorney and accounting fees that you've incurred for your business. You can also deduct 100% of your self-employed health insurance premiums as an adjustment to your earned income. You can also open a Keogh retirement plan and then deduct your qualified contributions to that plan.

Some people wait until filing their tax return to pay income tax on their small business, especially if that business doesn't bring in a lot of income. This can be a mistake though, in that you can incur a penalty for waiting to pay the taxes. It's best to pay them on a quarterly basis, making sure that you are paying enough to cover your self-employment tax.

[pennypinch]

This is a lot of great information, thanks. I am self-employed for one job and have another in which I am not and I pay taxes out of every pay for that job. It all can become quite confusing and these tips will definitely help out. It is important to save all receipts from anything that you have had to spend on your small business, even gas receipts from fill-ups to go to and from your business or any other business travel expenses. It can be deducted and will help to offset the self-employment tax.

[dollardaze]

Yes, it's very important to save all receipts for proof of those costs. The self-employed taxpayer needs to do all he/she can to help defray the self-employment tax, which can be quite high, even if that taxpayer doesn't make a lot of money with his venture.