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Feb 25, 2020

We are in the middle of tax season and being self-employed can be confusing and overwhelming. Today, we’re talking about how self-employed people are taxed, learning about income tax and self-employment tax, and discussing how much you should set aside for quarterly taxes.  

Self-employment taxes aren’t as you may think!

What We’re Talking About

  • How Are Self-Employed People Are Taxed?
  • Understanding Income Tax When You’re Self-Employed
  • How To Calculate Self-Employment Tax
  • How Much Should You Set Aside For Quarterly Taxes?

How Are Self-Employed People Are Taxed?

Despite the legal differences, Sole Proprietors and Single Member LLCs are taxed the same by the IRS. Understanding how the IRS classifies you is critical so you can be well prepared come tax season. 

Understanding Income Tax When You’re Self-Employed 

When it comes to income tax, it’s impossible to give a one size fits all explanation. There are many factors that contribute to what you owe, including your business income, other forms of income (like a side hustle), filing jointly with a partner, and personal deductions. Once you know your adjusted gross income, you can determine which tax bracket you are in. From there, you can use a tax table to estimate your payment to the IRS. 

How To Calculate Self-Employment Tax 

Luckily, self-employment tax is much more straightforward than income tax. Self-employment tax covers Social Security and Medicare and is is based on your net business income. It involves a couple of quick and simple calculations. Unfortunately, this tax nearly doubles when you’re self-employed.

How Much Should You Set Aside For Quarterly Taxes?

The question of all questions: How much money should I put aside for my taxes? There are a few ways to estimate what you will owe. You can speak to a tax preparer who is familiar with your personal financial situation. If your finances will be similar to last year, you can base estimations off those numbers. If all else fails, a good rule of thumb for quarterly taxes is 25-30% of your net income.

Tax season is here! Have you started your tax return yet?

LINKS MENTIONED

What Taxes Do I Pay If I’m Self-Employed?

https://gusto.com/blog/taxes/self-employed-taxes

What Small Business Taxes Do I Need to Know About? https://gusto.com/blog/taxes/small-business-taxes

2019 and 2020 Income Tax Brackets and Rates

https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/

Email: Podcast@andismiles.com