What To Know About Small Business Self-Employment Taxes?

by Harley Green Accountant

What is your experience with owning your own business, freelancing, or working as an independent contractor?

Prepare to pay self-employment tax, which is a tax you never paid as an employee. For assistance, contact an accountant Marina Del Rey.

Self-employment tax (officially called SECA tax for Self-Employment Contributions Act tax) is a tax paid by self-employed persons on their net earnings for Social Security and Medicare.

Self-Employment Taxes: What Are They?

The self-employment taxes include Social Security as well as Medicare taxes.

A self-employment tax rate of 15.3% is calculated by deducting 12.4% for Social Security and 2.9% for Medicare.

For W-2 employees, the company pays 7.5% or half of the tax, and the rest is deducted from your paycheck.

However, if you are self-employed, you are responsible for paying all 15.3% of self-employment taxes.

Paying Self-Employment Taxes When?

If you come under any of the mentioned criteria, you’ll have to pay self-employment taxes:

  1. From self-employment, you earned $400 or more in net income (excluding income from employment at a church).
  2. Employed at a church, you earned at least $108.28 in income.

Consult with a professional accountant Marina Del Rey who can guide you on the nitty-gritty of self-employment tax services.

When Are You Exempt from Paying Self-Employment Taxes?

Self-employment taxes are not due if:

  • You did not earn more than $400 in net income for your business
  • Passive income is income that comes from other sources.

Passive income is derived from a business in which you do not actively participate.

Or, if the income is derived from rental activities, such as owning rental property.

The How-To's Of Calculating Self-Employment Taxes

Step 1: Calculate your net earnings first.

Calculate the net earnings by considering the gross income from the business and subtracting deductions, tax credits, and depreciation allowances.

The calculation may differ depending on the type of business, but here is the general formula.

In addition, if your business has a net loss or a small amount of income, you are not required to pay self-employment taxes.

Step 2: Multiply your net earnings by 92.53%.

What is the significance of 92.53%?

As you know, self-employment taxes are deductible to the extent that you have taxable income as a self-employed person. For more information, contact an accountant Marina Del Rey.

In the IRS, this is referred to as the "employer-equivalent" portion of your self-employment tax.

Step 3: Multiply Step 2's result by 15.3%.

Let's discuss how to pay self-employment taxes now that you know how to calculate them.

Tax Savings Tips

You can save on taxes by familiarizing yourself with the business deductions and credits that you can take advantage of as a business owner.

To get you all started, check a quick list:

  • Organizational and startup costs
  • Technology and office expenses
  • Business lunches
  • Deduction for home office
  • Use of vehicles
  • Salary and benefits

Finally, a CPA can help you understand all aspects of self-employment taxes.

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About Harley Green Innovator   Accountant

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Joined APSense since, December 19th, 2018, From California, United States.

Created on Aug 2nd 2021 03:56. Viewed 405 times.


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