What Are Self-Employment Taxes?
There are no avoiding taxes and if you want to avoid a tax audit, it’s important to file your self-employed taxes right the first time. Unlike W-2 employees, self-employed taxpayers, contrary to traditional taxpayers, do not have taxes automatically deducted from their paychecks. It’s up to them to keep track of what they owe and pay it on time.
Some small business owners don’t know they need to make estimated tax payments – which can mean a tax bill in April. If you deal with this issue by ignoring it and not filing a return, your problem will only get worse from there. Rely on our team at IRS Fresh Start Initiative to help you out with your taxes and keep your small business on track. Find out how Fresh Start Initiative tax specialists can help with your small business taxes.
Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. According to the IRS official government website, the self-employment tax rate is approximately 15.3% altogether, 12.4% for social security (old-age, survivors, and disability insurance), and 2.9% for Medicare (hospital insurance).
The self-employment tax is designed to be collected from workers who are considered self-employed and don't pay withholding taxes. This includes sole proprietors, freelancers, and independent contractors who carry on a trade or business.
Calculations For Self-Employed Taxes
Self-employed taxpayers must first understand their tax rate, as well as any state and local taxes that may apply to them. To figure out your tax rate, first, calculate your net profit or loss for the taxable period.
You may figure this out by subtracting your business expenses from your business income. If your expenses are less than your income, the difference is known as net profit, and it is included in your earnings. If your expenses exceed your earnings, the difference is your net loss.
Resolve Your Tax Bills
Any self-employed individuals with back tax returns will be better off filing them as soon as possible. That can limit penalties, interest, and other IRS problems. Unpaid back taxes may be the biggest issue that taxpayers face, but the resolution may be very simple.
For taxpayers who may have difficulty paying off an excessive amount of tax debt, there's a tax relief program that consolidates many major relief programs into a one-size-fits-all assistance program; The IRS Fresh Start Program. It's a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!
Self-employed taxpayers can always contact IRS Fresh Start Program if they have any issues or need any clarity on their back taxes that accrued over time. Not many small business owners or independent contractors know that their tax is usually not withheld from self-employment income and that they're required to make estimated tax payments during the year to cover their federal income tax and self-employment tax.
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