Brave Your Self-employment Taxes

Brave Your Self-employment Taxes

Self-employment taxes can be a confusing topic, especially for those who are just starting out on their own. This blog post will help to clear up some of the confusion by defining self-employment taxes, explaining how to calculate them, and describing the process of paying them. We will also discuss the penalties for not paying self-employment taxes and the remedies available to those who have fallen behind.

Self-employment Taxes Defined

Self-employment taxes, sometimes referred to as SECA, are Social Security and Medicare taxes that are imposed on self-employed individuals. The tax rate for Social Security is 12.40%, while the tax rate for Medicare is currently set at a flat rate of 2.9%. This brings the total amount to 15.3%.

There is a cap on taxable Social Security income. For instance, in 2021, you would have only paid this portion of the SECA tax on income up to $142,800. There is no cap on the Medicare portion.

You are considered self-employed if you are a sole proprietor or independent contractor. You also fit the bill if you are a partner in a legal partnership or an owner of an LLC. If you are a single-member S corporation, you are considered an employee of the organization and pay your taxes through payroll instead of SECA.

Net Earnings

When you are self-employed, you only pay self-employment taxes on your net earnings. This is the amount of money you have left after deducting business expenses. Common deductions include:

  • office supplies and equipment
  • travel expenses
  • utilities
  • marketing and advertising costs
  • professional fees

You can deduct these business expenses from your gross income to calculate your net earnings. To do this, you will need to file a Schedule C with your tax return.

Due Dates

Self-employment taxes are paid on an individual’s personal tax return, which is due on April 18th in 2022. However, many self-employed people are liable for estimated tax payments throughout the year. The payment schedule for 2022 is as follows:

– April 18th: due date for first quarter estimated tax payment

– June 15th: due date for second quarter estimated tax payment

– September 15th: due date for third quarter estimated tax payment

– January 17th, 2023: due date for fourth quarter and final estimated tax payments

Penalties

If you do not pay your self-employment taxes on time, you may be subject to penalties and interest. The IRS imposes a penalty of 0.05% per month on late tax payments, with a maximum penalty of 25%. This means that if you are more than five months late on your taxes, you will owe the IRS a penalty of at least two percent of your unpaid taxes.

If you cannot pay your taxes in full, you should still file your return on time and pay as much as you can. This will help to minimize the penalties and interest that you accrue. The IRS also offers payment plans for those who are unable to pay their taxes in full.

How to Pay Self-employment Taxes

The easiest way to pay your self-employment taxes is to use the Electronic Federal Tax Payment System (EFTPS). This system allows you to make tax deposits or estimated payments through the internet or over the phone.

You will need to set up an account with EFTPS before you can begin making payments. Once you have done so, you will be able to schedule payments in advance or make same-day payments.

If you would prefer to pay your taxes by mail, you can do so by sending a check or money order to the IRS. Be sure to include your name, address, Social Security number, and daytime phone number on the payment.

You will utilize 1040-ES for estimated tax payments. This form includes a worksheet to help you calculate your estimated taxes as well as vouchers that you can use to mail in your payments.

Popular Tax Software for Small Business

There are a number of tax software options available for small business owners. The three most popular tax software programs are TurboTax, H&R Block, and TaxACT.

TurboTax is one of the most popular tax preparation software programs on the market. It offers a variety of features and benefits, including:

  • Free federal and state filing for simple tax returns
  • Step-by-step guidance throughout the tax preparation process
  • Ability to import previous year’s tax return information

H&R Block is another widely used tax preparation software program. It also offers free federal and state filing for simple tax returns. Additionally, it provides:

  • A team of expert tax professionals to answer questions and provide support
  • Assistance with tax reform and tax law changes
  • Audit support if you are selected for an audit

TaxACT is a less expensive alternative to TurboTax and H&R Block. It offers free federal tax filing for simple tax returns. However, it does not include free state tax filing. TaxACT does provide:

  • Guidance through the tax preparation process
  • The ability to import previous year’s tax return information
  • Access to expert tax advice and support

When choosing a tax software program, it is important to consider your specific needs and budget. All three of these programs offer a variety of features and benefits that can be helpful for small business owners. Ultimately, the best decision is the one that meets your individual needs in the most cost-effective way.

TurboTax, H&R Block, and TaxACT are all popular tax software programs for small business owners. When choosing a tax software program, it is important to consider your specific needs and budget.

All three of these programs offer a variety of features and benefits that can be helpful for small business owners. Ultimately, the best decision is the one that meets your individual needs in the most cost-effective way.

If you need help deciding which tax software program is right for you, TurboTax offers a comparison tool that can assist you in making your decision. This tool allows you to compare the features and benefits of each program side-by-side. Additionally, H&R Block has an online chat feature that can answer any questions you may have about their tax software program.

When it comes to tax preparation, there are a number of options available to small business owners. By taking the time to research your options and choose the best tax software for your needs, you can ensure that your taxes are filed correctly and efficiently.

Summary

In summary, your small business taxes are an important part of running your business, but they don’t have to be a mystery. After you get in the hang of making your deposits on schedule and get used to your filing schedule, it will become second nature.

There are plenty is plenty of great tax accounting and tax software out there, plus there are always accountants should you want to really make sure all your bases are covered.

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