Understanding Self-Employment Tax

You did, following your dream and started his own business, and now reality hits. Income tax time is approaching and it is time to calculate taxes.

You need to learn everything possible about taxes, just as you learned everything he could about your business.

Self-employment tax applies to all those who are self employed and made more than (we hope so) $ 400 a year. No matter how old you are, even old enough to collect Social Security, the federal government wants their share of your income.

If you are an employee, the employer shares the tax burden with you, they pay 7.65% of your income and so do you. When you are self employed you get to pay the whole, 15.3%. 12.4% goes to pay Social Security and 2.9% for Medicare. But this applies only to income of $ 94,200. Other than that you pay only 2.9% for Medicare.

When you are self employed, it is your responsibility to pay quarterly estimated tax payments. If you have used your employer would do this for you, but since you get to be your own boss, you have to do with this. Quarterly estimated taxes are due in April, June, September and January if you do not pay them could be subject to underpayment penalties.

I would recommend that you get the general picture with regard to tax liability. You have to plan ahead. Enjoy a free online calculator to estimate the quarterly income and self employment tax, and calculate the estimated income tax as well. Knowing in advance what is expected of you. Is not your business worth?