Self Employed Taxes For Dummies: The Guide
By Davis Clarkson , April 19 2021
What are self-employed taxes for dummies and what is self-employment income taxes? What does self-employment tax cover and what income is subject to self-employment tax? These are excellent questions. You'll discover the answers in this guide. In 2016, there were about 9 million self-employed workers.
Being self-employed offers a lot of benefits. You're not accountable to anyone but yourself. You can make as much as you want as long as you put the work in. Yet there are also some challenges to being self-employed. You have to create invoices and figure out how much is tax-deductible in your business. You may also need to create a 1099 or W-2 form.
This is why it's important to know your state's pay stub requirement. If you do it wrong, it could hurt you when tax season comes around. Here are self-employed taxes for dummies that can help you understand the basics of what it means to do taxes for your individual business.
Do You Have To Pay For Self Employed Taxes?
If you make more than $400 per year, you have to pay self-employment income taxes. There are no escaping taxes even if you make very little in a year. You can avoid paying taxes regardless of what your job is or even if you work for charities. You have to pay whatever percentage you earn.
What's Tax Deductible?
Now that you have an idea of the minimum you need to earn to pay taxes, there is still some good news. You can pay fewer taxes if you have tax-deductible items. You might be wondering, " What income is subject to self-employment tax? What does self-employment tax cover? What is tax-deductible?
For starters, something that is tax-deductible is when you pay for your business and are seen as a business expense. This can help lower your overall taxes. Here's everything you need to know about what's tax-deductible and what's not tax-deductible.
What does self-employment tax cover? For starters, it covers your workspace. Your workspace can be a tax write-off because you are using it for your business. For example, if you purchase a desk, computer, chair, filing cabinets, or anything for your business, it can be considered a tax write-off. That means it can be deducted from your taxes when you pay each quarter because you are using it to pay for business expenses.
Another tax deduction is education. If you are attending college or taking a workshop to enhance or further your education, it can be considered tax-deductible. This means if you pay for tuition, books, or any other school-related expenses to enhance your business, it can be considered a business expense.
What does self-employment tax cover when it comes to travel? If you are self-employed, you may have to travel for education or to meet clients. This can also be considered tax-deductible. That means you can deduct the cost of the plane ticket, the cost of where you are staying, and possibly the food you have to pay for where you are traveling.
Lastly, you can also get a tax-deductible for health insurance. That means you don't have to pay as high as premiums each month because it's coming out of your taxes. Or you can pay a high premium health insurance and get reimbursed for it when you do your taxes in the spring.
When & How Do You Pay Self Employed Tax?
What income is subject to self-employment tax? This is another excellent question especially when it comes to paying quarterly taxes. You have to pay self-employed taxes quarterly. This means you have to pay them on April 15th, June 15th, September 15th, and January 15th. This is also known as self-employment income taxes. You can pay these taxes through the IRS website.
Before you pay for your self-employed taxes, you should know how much you should pay. You should know how to calculate your taxes so you know what to expect to pay each quarter. Here's an example of what you should pay. If you anticipate making $85,000 per year, you should take $85,000 and multiply it by 92.35% (self-employed tax rate) and then multiply it by 15.3% which is $12,010.00.
You also have to factor in where the income bracket is if you make $85,000, which is $9,803.50. So you take $9,803.50 and add it by $12,010.00, which is $21,813.61. When you divide this by 4 quarters, you have an estimated tax of $5,453.40. This is how much you are estimated to pay each quarter.
What Else Should You Know?
What else should you know about self-employed taxes or self-employment income taxes? The hardest part is making the payments. If you don't make your estimated payments each quarter, it can lead to penalties. You may have to pay a penalty if you don't pay your taxes on time or you pay lower than what you actually owe.
This is why it's important to calculate your taxes and makes sure you pay them on time. It's why you should know everything about self-employed taxes for dummies.
Always Have Records
Another part of paying and mastering your self-employed taxes is having records. You should always have records of the transactions for your business. If you have to mark something as tax-deductible, you should keep a receipt for it. This way you have proof of the business expense. You should also have recorded so you can estimate what your net income is.
This can also give you a better estimate of how much you need to pay to the IRS each quarter. It can help you anticipate and save when you pay quarterly taxes. It can help you pay a more accurate quarterly tax and avoid paying a penalty. Having records also helps you see how you can reduce any penalty and make sure you are correctly filing your taxes in case you ever get audited.
That's All You Need to Know About Self Employed Taxes for Dummies
When it comes to being self-employed, you may know everything about how to find clients, but when it comes to the accounting side, it can be more difficult. That's why these self-employed taxes for dummies can be a helpful guide. It can show when you need to create paystubs when required, pay for taxes, what is tax-deductible, and more. It can make sure you don't run into any trouble with the IRS. Check out more of our articles and stay in the know!