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For many people, being self-employed represents a dream come true. You can be your own boss, set your own schedule, and do something that you love doing. However, with the freedom of being self-employed comes the responsibility of paying taxes. If you are unsure about how self-employment taxes work, don’t worry, you are not alone. Thankfully, you’ve got the team at Edgewater CPA Group here to help you navigate taxes when you’re self-employed.
What Are Self-Employment Taxes?
Self-employment taxes are those that self-employed individuals must pay to fund Social Security and Medicare. Employees who are not self-employed pay half of these taxes through payroll deductions, and employers pay the other half. However, when you are self-employed, you are responsible for paying the entire amount yourself.
How to Calculate Self-Employment Taxes?
Self-employment taxes are calculated based on your net income. To calculate your net income, you will need to subtract your expenses from your gross income. Once you have calculated your net income, you can use that figure to determine your self-employment tax liability.
How to Pay Self-Employment Taxes?
Self-employed individuals are required to pay quarterly estimated tax payments to the IRS. These payments are due on the 15th of April, June, September, and January of the following year. If you fail to make these estimated payments, you may be subject to penalties and interest charges. To make these payments, you can use the IRS’s online payment system or mail a check to the IRS. Keeping track of your payments and ensuring you are paying enough to cover your tax liability is important.
What are the Deductions for Self-Employment Taxes?
Self-employed individuals are eligible for a number of deductions that can help lower their tax liability. Some of these deductions include home office expenses, equipment expenses, business travel expenses, and more. Keeping good records of your expenses is important, as you must provide documentation to the IRS. You should also consult with a tax professional to ensure that you are maximizing your deductions and minimizing your tax liability.
Ready to Get Organized?
Understanding self-employment taxes can be challenging, but it is an important part of being self-employed. When you need experts in your corner, turn to Edgewater CPA Group in Carmel, IN. We can help you with small business tax prep, business growth, and bookkeeping. So, schedule your consultation with our team today by calling (317) 386-7021.