I don't know much about taxes, If you file as Self-Employed, do you get slammed at tax time?

Answer 1

If you file as self-employed, you will more than likely fill out a Schedule C (or schedule F if you are a farmer), and be taxed on that income. You will pay the regular tax that everyone else pays, but also will have to pay self-employment (SE) tax. This substitutes for the social security and medicare taxes that are withheld from employees paychecks, and matched by their employers. The SE tax is 15.3% of 92.35% of the Schedule C (or F) profit. You need to keep proper track of your self-employed income and expenses to make sure that you are reporting and being taxed on the proper amount of income that you have earned. This income will be your social security wages that you will be getting credit for with social security so that you will have something to retire on.

I've attached an irs guide for self employed persons that will hopefully give you some guidance.

PS, being self-employed you are supposed to pay quarterly estimates for your taxes. This represents the federal withholding, social security and medicare taxes that would be withheld from your paycheck. The irs lets you base it on either 100% (110% if you're a high income person) of the previous year tax, or 90% of the current year tax.

Answer 2

You'll pay both sides of social security, so the total will be 15.3% instead of the 7.65% you'd pay as an employee, where your employer would pay the other half.

On the other hand, there might be more deductions available to you, so that could even things out.

The reason people usually feel slammed at tax time is because they see the whole self-employment tax at once rather than as a deduction from each paycheck.

If you are self-employed, you almost surely need to make quarterly estimated tax payments, filing a form 1040ES.

Answer 3

If you are self employed, you have to pay twice the social security and medicare tax (once as the employee and once as the employer). Other than that there's no difference. So, if you're working for yourself (not a W-2 employee) you'll have to pay an extra 7.65% in taxes. Just make sure you charge a little more per hour to make up for the difference.

You will get to deduct expenses that were used to generate the income you made from that income (i.e. if you used a car to drive to the jobs, needed a cell-phone to take business calls, needed to buy materials to do the work). If you have a lot of expenses, it will lower your taxes... but you will have to pay the expenses, so you'll have less money anyway.

Answer 4

Well, I have owned my own branch of a mortgage company for 6 years. The best advice I can give you is the following:
1. Get a great accountant. The more you pay them, the less money you show on the books. Therefore the less taxes you pay. ( I have shown a negative cash flow for 3 years lol )
2. Save a receipt from every single thing you do. Whether it is a cup of coffee, broadway show, baseball game, gas, food, .... doesn't matter - business expenses!
3. Keep selling! Sky's the limit when you are self employed.

Good Luck in your future endeavors!

Answer 5

Yes. Self Employed people get to pay the both the employee and employer part of the FICA tax. This is the part that pays for Social Security and Medicare type of stuff.
Normally you only pay 7.65%, but self employed pay 15.3%.
There are some special exceptions and clauses of course.

Answer 6

We are accounting firm and your question is not illogical but our suggestion is simple. Please hire someone to do your taxes.

Review our site go to link where there is 1040 tax estimator etc. this may help. You could file as Sole Proprietorship, Partnership, LLC, Corp, S Corp etc. you may have rental income, you may have stocks and bonds you may have every known form of expense and write off known to man. You may have every known form of income known to man.

The question would be based on many, many, many, many okay, you get the idea, factors.

BC Business Services, Inc.
http://www.bcbsinc.com

Answer 7

If you do it right you shouldnt be hit to much.

example:

Track your milage, expences. Speak with your Accountant and always keep reciepts on file.