There are a lot of benefits to being self-employed. Becoming an entrepreneur affords you independence, the ability to follow your passion, and, just as importantly – financial rewards. However, income earned through self-employment is treated differently than income reported on a W-2. If this is your first time being self-employed, the thought of tax time may be intimidating. The good news is you don’t have to be an expert to file your return. Here are the basics of self-employment taxes to get you started.
What is the self-employment tax?
The self-employment tax is the equivalent of Social Security and Medicare (FICA) tax.
For employees who receive a W-2, FICA tax comes directly out of their paychecks. Full-time employees pay 7.65% on wages up to $147,000 for Social Security and Medicare (FICA), and their employers match this payroll tax, so the total paid per employee for FICA is 15.3%.
As a self-employed worker, you are responsible for the entire 15.3% tax.
Do I also have to pay federal taxes?
When you’re self-employed, you’ll generally need to pay federal income tax in addition to self-employment tax.
The IRS requires you to report your earnings and file an IRS Form 1040, U.S. Federal Income Tax Return, if you earned more than $400 in self-employed income or $108.28 as a church employee.
The tax forms you’ll use to report your income are different than if you received a W-2 from an employer. When you’re self-employed, you’ll report your Form 1099 and other business income (or losses) on Schedule C of your 1040. Your self-employment tax will be calculated using Schedule SE.
You can make estimated payments to cover your tax liability throughout the year, or you can pay in a lump sum when you file your return.
Can I deduct business expenses when I’m self-employed?
As a self-employed worker, there are certain expenses you can write off when you file your income tax return. For example, if you have a home office, you may be able to deduct a portion of those costs. You may also need to travel for your business. In that case, you could be deducting a certain amount for mileage.
Other self-employed business expenses that could be deducted are things like advertising costs, business insurance, rent, education, meals, and more. Read through the necessary guidelines to see if your expenses qualify. Reporting all your qualifying expenses will help to lower your tax bill.
Using TaxSlayer for self-employment taxes
Knowing which taxes you’re responsible for as a self-employed worker is a lot to manage–especially if you’re busy finding new business, maintaining the quality of your product and everything else that goes into working for yourself. That’s all the more reason to use TaxSlayer Self-Employed. TaxSlayer makes it easy to complete your forms, calculate your tax, and claim all the tax deductions and credits you deserve–at a fraction of the cost of the competition. Start using TaxSlayer for free today.