A Dummy’s Guide to Self-Employed Taxes

You found a great freelance job. Maybe you’ve started your own business and are loving the tax-free income that has started to come in.

The tricky part about working for yourself is that you have to deal with your income in a way that allows you to handle taxes later. In most cases, self-employed individuals have to pay taxes rather than receive a refund.

That requires a little planning and some know-how on what to do when tax time comes around. We’re going to explore self-employed taxes for dummies today, giving you some ideas on how to take care of taxes with your new position.

Let’s take a look.

Self Employed Taxes for Dummies

First things first, let’s take a look at the percent of your income that goes toward taxes.

Self-employment tax comes out to around 15.3 percent of your net income. It might not seem like such a huge figure at first, but it adds up over the course of the year. That number starts to build, and you’re faced with a whopping bill at tax time.

Why is paying self-employed taxes so expensive? Medicare and social security account for around 7.65% of an employee’s wage. In other words, that percent is taken out for those two taxes on every paycheck.

In addition to that, employers are required to match that contribution. As a self-employed individual, you’re required to pay taxes as though you were both the employee and the employer. Take 7.65 and match it and you wind up with 15.3%.

If you’re in need of paycheck templates, here are some great examples of paystubs for you to choose from.

There are different taxes or specifications that might affect your situation depending on how much money you make, but the medicare and social security tax are the most significant figures. These apply to almost everyone who is self-employed.

If you expect to owe more than $1,000 in taxes, you’re required to file self employment taxes quarterly. If that’s you, make sure to find out more about how and when these taxes are expected.

Benefits of Self-Employed Taxes

Now, just because you’re faced with a baseline of 15.3 percent doesn’t mean that’s what you’ll really pay.

Freelancers and other self-employed individuals have the luxury of business deductions. These are costs associated with running and operating your business or professional life, and they can be deducted.

The standard deduction rate fluctuates on your income. It could be anywhere from 9,700 to over half a million dollars. Essentially, the standard deduction is a figure you can write off if your business expenses don’t exceed them.

So, if you spent $4,000 on deductable things over the year, you can still write off the amount of the standard deduction. If you spend more, you can write that off.

In some cases, you won’t have to pay anything on taxes with a healthy deduction.

Need to Learn More about Filing?

Hopefully, our exploration of self-employed taxes for dummies was helpful to you. There are a lot of other factors that might come into play if your work situation is complex, though.

We’re here to help you sift through the rubble and file your taxes on time. Explore our site for more ideas on how to approach your money, life, and work in the best way.