If you are self-employed and you are setting money aside for taxes, you’re probably thinking about your income tax. But now that you’re a business owner, you have to think about self-employment taxes as well. In this post, I’ll be walking through how you can calculate for them.
This works for you if you’re a sole proprietor, a member of an LLC, or a partner in a partnership. However, If you’re a part of an S Corp, one of its benefits is that you don’t have to worry about self-employment taxes because this doesn’t apply to you.
Here are the topics that I discussed in detail in the video above, plus a short preview of each:
What is self-employment taxes?
Self-employment taxes are basically payroll taxes. But when you’re self-employed, you don’t have an employer who will care of them for you, so you have to manage them yourself. In short, self-employment taxes are made up of two components: the employer + the employee portion of payroll taxes.
What is the total tax rate?
Self-employment tax rate is 15.3% and consists of 12.4% for Social Security and 2.9% for Medicare.
Do you get a deduction for self-employment taxes?
You get a deduction for 50% of the tax or the employer portion of it.
When do you pay self-employment tax?
Self-employment tax is calculated on your Form 1040 Schedule SE at the end of every year (due April 15th), BUT you must pay in estimated payments every quarter.
Having your own business comes with its perks – like choosing your rates or not being chained to a desk for a strict number of hours, to name a few. But it also comes with the downside of having to figure out and pay your self-employment taxes. The good thing is, this doesn’t have to be complicated. The key is to keep your finances organized ahead of the tax season and having a system that works for you.