4 important tax matters for self-employed taxpayers - Alba Translations, CPA 4 important tax matters for self-employed taxpayers
19074
post-template-default,single,single-post,postid-19074,single-format-standard,ajax_fade,page_not_loaded,,side_area_uncovered_from_content,qode-theme-ver-12.0.1,qode-theme-bridge,wpb-js-composer js-comp-ver-6.0.5,vc_non_responsive

4 important tax matters for self-employed taxpayers

4 important tax matters for self-employed taxpayers

There are millions of taxpayers in the US who hold wage-paying jobs where income taxes are withheld from their checks based on the information provided on Form W4 to their employer.

But what if you don’t have a job where there’s withholding? That’s the case for millions of self-employed taxpayers.  The work freedom of being your own boss comes with some new tax responsibilities for self-employed taxpayers.

U.S. taxes are on a pay-as-you-earn system regardless of whether you get your income from an employer or as an independent worker. So when you work for yourself, you are responsible for the numerous tax implications.

Here are four tax matters that require the attention of self-employed taxpayers, particularly those who get all their income from entrepreneurial enterprises.

1. Pay your estimated taxes on time.
Income tax payments obviously are top of the list if you earn enough to meet the federal income tax filing threshold. Be sure to budget for your quarterly estimated tax payments.

Estimated taxes must be paid if you think you’ll owe $1,000 in taxes or more, or if your tax liability was greater than $0 in the prior year. Fail to do so, or don’t make the payments on time, and you’ll end up owing penalties and interest.

Estimated taxes are due April, June, September and the following January, usually on the 15th unless that day falls on a weekend or holiday.

2. Account for your SE taxes.
Those estimated taxes also must take into account your associated self-employment (SE) taxes — both the employee and employer portions — that you now must pick up yourself.

SE taxes are the independent worker’s counterpart of the Federal Insurance Contributions Act (FICA) taxes that salaried workers see withheld on their paychecks for Social Security and Medicare.

These tax rates are 12.4 percent for the retirement fund component and 2.9 percent for the federal health care insurance for older Americans.

When you work for someone else, you and your employer split payment of the percentages equally. But when you work for yourself, you must pay both employer and employee portions. The employer half, however, can be deducted by folks who report their SE income on their annual personal income tax return as an above-the-line deduction.

3. Selecting the correct business structure is crucial.
When you’re self-employed, you can choose the type of business entity for your enterprise. Your selection will affect how you pay your taxes and sometimes the amounts you owe.

The easiest option is to file as a sole proprietor. It’s easy, requires little paperwork and you file your business income on Schedule C or C-EZ as part of your annual individual tax return.

If you have a trusted colleague, a partnership also is a possibility.

See Also: Business structures and 
other small business tax considerations

Incorporating your business provides liability protection. An S corp, for example, can provide more tax flexibility, such as paying yourself a reasonable salary and take some profits out of your company in the form of distributions, upon which you don’t pay FICA tax.

Of course, the various business tax structures can quickly get complicated. Before you make any changes, for tax or other reasons, it’s a good idea to consult tax and accounting professionals.

4. Consider combination earning implications.
If your self-employment income is not your full-time job, but simply a way to pick up a bit of pocket money, you’re not necessarily off the self-employment tax hook.

Even if you don’t hit the earnings amount requiring your file a tax return on your self-employment income, you still could owe Social Security and Medicare taxes. These taxes must be paid if you make $400 or more through self-employment enterprises.

In these cases of combined wage and SE earnings, the IRS’ new withholding estimator can help. The new online tax calculator does take into account SE income that you have in addition to a wage-paying job where taxes are withheld.

If you’re one of these workers with a side hustle, you can include that gig money in the withholding estimator to get an idea of how to adjust your payroll withholding to take it into account, too.

Regardless of what route your self-employment journey takes, be sure to take these issues into account to make for smoother tax traveling.

No Comments

Post A Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.