Self-Employment Taxes: Save Money & Avoid Back Taxes

Freedom and Flexibility, But Taxes Too!

The dream of being your own boss is a powerful motivator for many. However, the realities of self-employment extend beyond pursuing your passion. Understanding self-employment taxes is crucial to avoid financial headaches down the road.

This guide equips you with the knowledge to navigate tax season with confidence, even if you’re already facing back taxes.

Avoid Surprises: Proactive Tax Planning Tips

  • Estimate Your Taxes: Utilize the IRS resources to calculate your estimated tax payments using Form 1040-ES, Estimated Tax Worksheet. Consider consulting a tax professional for a personalized plan, especially if you anticipate significant income. 
  • Pay on Time: Make your estimated tax payments on the deadlines to avoid penalties. 
  • Track Your Income & Expenses: Maintaining good records throughout the year simplifies tax filing and helps you maximize deductions.

Understanding Self-Employment Taxes

As an employee, your employer automatically withholds income tax from your paycheck. Self-employed workers don’t have this benefit. They are responsible for:

  • Estimated Tax Payments: Make quarterly estimated tax payments to the IRS throughout the year if they expect to owe at least $1,000 in income tax at year-end.
  • Self-Employment Tax (SE Tax): Contribute to Social Security and Medicare by paying the full SE tax rate (15.3%) on their net earnings. This is different from employees who split this cost with their employer through Federal Insurance Contributions Act (FICA) (7.65% each).

In simpler terms:

  • As an employee: You pay 7.65% for Social Security and Medicare on your W-2 earnings, and your employer pays the other 7.65%.
  • As a self-employed individual: You pay the full 15.3% for Social Security and Medicare on your net earnings, covering both the employee and employer portion.

Report All Income, Even Side Hustles!

Any self-employment income (over $400) needs to be reported on your tax return, even if you have a regular job. This applies to side hustles and income that doesn’t trigger estimated tax payments. Not reporting it will lead to penalties and interest, plus any taxes owed when assessed.

Maximize Deductions to Lower Your Tax Bill

Many self-employed individuals can qualify for tax deductions that lower their taxable income. Some common deductions include:

  • Home office expenses (if you meet specific criteria)
  • Business equipment and software
  • Travel related to your business
  • Continuing education expenses

Consulting a tax professional can help you identify all the deductions you qualify for. 

Facing Back Taxes? We Can Help!

If you find yourself owing back taxes, you’re not alone. There are options available to help you resolve your tax debt and move forward. Ergedine Pericles, CPA, P.A. can assist you with:

  • Negotiating with the IRS on your behalf
  • Creating a payment plan to settle your tax debt
  • Exploring penalty abatement options 

Don’t let back taxes hold you back! Contact us today for a consultation to discuss your situation and explore your options. 

By taking proactive steps and understanding self-employment taxes, you can save money, avoid penalties, and focus on growing your business! 

Ready to Get Started?

While this guide provides a helpful overview, consider consulting Ergedine Pericles, CPA, P.A. for personalized tax advice. We can help you navigate the complexities of self-employment taxes and ensure you’re on the right track financially. 

Contact us today to schedule a consultation!

CALL NOW (786) 212-1803