Taxpayers who work for themselves pay self-employment tax.
It is primarily a Social Security and Medical tax similar to the one withheld for taxpayers who work for someone other than themselves.
Examples of the self-employed are contractors, sole proprietors, and small business owners.
Self-employed people can work part time or full time.
If you work for yourself and someone else does not withhold your taxes, you have got to pay self-employment tax.
Medicare makes up 2.
9% of the self-employment tax.
Social Security taxes amount to another 12.
4% of self-employment taxes, bringing the total to 15.
3%.
Social Security tax is based upon the first $94, 200 the self-employed individual makes.
Any earnings above that are no longer subject to the Social Security portion of the tax.
There is, however, no cap on the Medicare tax.
It is based upon the total income, no matter how high.
Individuals paying the self-employment tax must have a social security number or a taxpayer identification number.
You have to pay your estimated self-employment tax on a quarterly basis.
If you are self-employed and are making more than $400 annually, you have to pay self-employment tax.
If you are a church employee who makes more than $108 a year, you must pay self-employment tax.
The self-employment tax is not a substitute for income tax.
A self-employed individual must pay the self-employment tax in addition to his or her income taxes.
You can, however, deduct half of your self-employment taxes from your income tax.
This does not sound like such a good deal for the self-employed, but remember that the self-employed qualify for all of the legitimate business deductions as well.
If you can base your self-employment from home, you can take advantage of great tax savings and lower your tax liability tremendously.
Basing your business from home will allow partial deductions for things like your mortgage, meals, insurances, utilities, entertainment, travel, and many other expenses.
Being self-employed can put you in the best position to lower your tax liability through business deductions.
Owning businesses is the way the rich dramatically reduce their tax liabilities.
Being self-employed means that you are in business and you are fully entitled to all the legitimate deductions that your filing status affords.
By taking business deductions, you can reduce your tax liability from 40 to 70%.
You can join the ranks of those educated taxpayers who long ago realized the best way to optimize their deductions.
Being in business means that you can stop overpaying the Internal Revenue Service and keep more of the money you earn.