Self-employed Taxes for Dummies

May 18, 2023
by workmade
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Here's what you need to know about paying your income taxes.

So, you're self-employed and now you're responsible for paying your own taxes. Fun times! Don't worry, this guide is here to help you out. Calculating and paying self-employment taxes can be confusing, especially if you're not too great at math, but we've got you covered.

Let's start with the basics.

Self-employment taxes are the taxes that self-employed individuals must pay on their earnings. These taxes fund Social Security and Medicare programs for the self-employed. The self-employment tax rate is currently 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. But you don't need to worry too much about the details. It's just important to know that you pay extra taxes when you are self-employed because your employer is not paying them for you. The good news is, there are ways to bring down your tax bill if you manage your expenses properly.

Now, who has to pay self-employment taxes?

If you're self-employed and your net earnings from self-employment are $400 or more, you gotta pay up. Net earnings are your total earnings from self-employment, minus any allowable deductions.

So how do you calculate your self-employment taxes?

When you're self-employed, calculating your taxes can be confusing, but it's important to get it right so you don't end up owing the IRS more money than you expected. Here are the basic steps for calculating your taxes:

- Determine your net earnings from self-employment. This is your total income minus any allowable deductions (aka tax write-offs.)

- Multiply your net earnings from self-employment by 15.3%. This includes both Social Security and Medicare taxes.

- Subtract any applicable deductions, such as health insurance premiums, retirement plan contributions, and other business expenses.

- Calculate your income tax using the IRS tax tables or tax software.

- Add your self-employment tax and income tax together to determine your total tax liability.

If you're a WorkMade user, we'll do all these calculations for you.

It's important to keep accurate records of all your business expenses and income throughout the year so you can easily calculate your taxes come tax time. If you're not sure how to calculate your taxes or need help with your tax planning, consider consulting with a tax professional or using a tax software program specifically designed for self-employed individuals. *Cough* WorkMade *cough.*

Now, let's talk about how to pay these taxes.

Self-employed peeps pay their self-employment taxes by filing an annual tax return with the IRS. However, if you expect to owe $1,000 or more in taxes for the year, you may need to make quarterly estimated tax payments throughout the year. These payments are due in April, June, September, and January of the following year.

But wait, there's more! As a self-employed individual, you can take deductions for certain business expenses, such as home office expenses, business travel expenses, office supplies, equipment purchases, health insurance premiums, and retirement plan contributions. So make sure to keep accurate records of your business expenses so that you can claim all eligible deductions on your tax return. This is a major way to reduce your taxes, which are going to be higher than if you have a W2 job. So it's important to keep track of your business expenses. Generally, the easiest way to do this is to have a separate business bank account. This way you know exactly how much you've earned and spent on your business, making tax calculations less terrifying.

Phew, that was a lot of info. But here's the bottom line: self-employed taxes can be complex, but understanding the basics is crucial for any self-employed individual. If you want to make things easier for yourself, you can save money throughout the year for your taxes and pay quarterly estimated tax payments. And if you want to automate and manage your taxes, platforms like WorkMade can help you out. And if you have any questions or concerns, don't hesitate to consult with a tax professional. Good luck out there, fellow self-employed peeps!

Each individual and business tax situation is different and unique so WorkMade does not provide specific tax advice, only supplying general information based on information published by various taxing authorities, which may change over time.

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