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James Maertin, C.P.A.
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Self-Employed To get started, please fill out a tax questionnaire. If you work for yourself, you are considered self-employed. A self-employed persons include those known as independent contractors or as sole proprietors of an unincorporated business. A big advantage to this status is that you can deduct business expenses almost without limitation. For ideas on deductible business expenses, please have a look at my extensive list of Deductions. However, being self-employed also means that in addition to income tax, you will have to pay your own social security and Medicare taxes (known as self-employment tax when they apply to self-employed people). If you were an employee, your employer would pay 7.65% of your wages for social security and Medicare, and another 7.65% would be withheld from your pay, but as a self-employed person the full 15.3% is assessed on your net income (gross income minus business deductions) from self-employment. Nevertheless, since this is computed on your net self-employment income, rather than on gross income, you may not be that much worse off, especially if you have a lot of business expenses. Also, you are allowed to deduct half of the self-employment tax, so the effective rate becomes closer to 13%. In any case, I will calculate these amounts on your tax return. If you have substantial self-employment income you probably should start making quarterly estimated tax payments. I will provide you with payment vouchers when your tax return is ready. It is important to keep detailed records of your income and expenses for 3 years. The IRS will want to see them if you are audited. Be aware too that if the IRS determines that you have underreported your gross income by more than 25% they can go back 6 years in an audit. |
