Winning Process to Estimate Your Self-Employment Taxes
By: Dorothy Griggs
It's no secret that successful professionals have great systems and checklists to help them complete their tasks. One of the most effective ways to estimate and pay your quarterly taxes is to have a plan of action to complete this requirement for Uncle Sam.
Creating a system for any task is a "process" and not a one-time event. So, in order to see results you must start the process. And as you see success, you'll begin to gather momentum and soon be able to calculate the lowest, yet legal, amount to submit to the IRS every quarter.
Let me share with you five simple steps you can do today to help you satisfy the 'tax man' when it comes to your self-employment tax and sleep like a baby tonight.
STEP ONE - What exactly is the 'self-employment tax'?
It's a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most employees.
The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). But I have good news! You can deduct half of your self-employment tax in figuring your adjusted gross income when you file your Form 1040 each year.
STEP TWO - Establish if you are really 'self-employed'
According to the Internal Revenue Service, you are self-employed if any of the following apply to you.
Most of the self-employed community are independent contractors, sole proprietors, and one member Limited Liability Corporations (LLC) that did not elect to treat the LLC as a corporation. This step can get a little tricky, so make sure you get help with a knowledgeable person if you're unsure.
STEP THREE - Determine if actually have to pay the 'self-employment' tax
You must pay self-employment tax if your net income from self-employment were $400 or more. Net income is all of your business income less all of your business expenses (Simply look at your Net Income or Profit and Loss Statement from your bookkeeping). You generally have to make estimated tax payments if you expect to owe tax, including self-employment tax, of $1,000 or more when you file your return.
The bad news: Another tax you have to consider for the $1,000 threshold is your regular federal income tax (if it's not being withheld from your salary).
The good news: Interest, dividends, capital gains, rental income, pensions and other forms of unearned income are not subject to self-employment tax. So make sure you have great tax planning to keep your self-employment tax low (or even zero!)
STEP FOUR - Calculate your 'self-employment' tax
STEP FIVE - Make sure you make timely payments
You may be thinking, 'Well, I'll just pay all the federal income taxes I owe when I file my tax return in April." Unfortunately, that won't work with Uncle Sam.
The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
The due dates for all federal estimated tax payments are January 15, April 15, June 15, and September 15.
Keep in mind that as a self-employed individual, you may be responsible for completing multiple tax forms, depending on your type of business. But self-employment taxes are one of the major taxes you should be aware of. So make sure it doesn't catch you off guard this quarter.
|
(c) 2008 Dorothy J. Griggs |
Article Source: http://EzineArticles.com/?expert=Dorothy_Griggs
About the Author:
ABOUT THE AUTHOR
Dorothy J Griggs EA, the Virtual Tax Strategist, helps Independent Service Professionals and Small Business Owners find hidden profit centers in their businesses through simplified tax planning and bookkeeping. For more profit tips and a FREE 10 secret guide to increase small business wealth go to http://www.virtualtaxsolutions.com
This Article is Brought to you by:
Article Sponsorships Available
Short description about your link.
Add your link here
Article Sponsorships Available
Short description about your link.
Add your link here
Taxes Related Articles:
Medical Savings Accounts Information
Today, more than ever individuals should be concerned about their retirement savings, and if they will have enough to see them through their golden years. Currently, social security benefits are all that many Americans hav...
By: J.Morgan
Can you Avoid Being Audited?
More than filing taxes, more than tax time itself, people dread getting audited. Both individuals and companies worry about the possibility of undergoing an audit, and the negative impression we all seem to have isn’...
By: J. Morgan
Tax Tips for the Self Employed
Being self-employed comes with a whole host of tax-related advantages and savings. In fact, being self-employed is considered by many to be one the best tax strategies of our time. Self-employment allows you full ...
By: J.Morgan
Updated Taxes Related News:
Own your own business? Here's a big-picture look at what good estate planning should accomplish for you.
Nightmare On Elm Street
Declining home prices and higher adjustable rate mortgage payments spell big trouble for some borrowers.
Who's A Domestic Producer?
Big U.S. businesses await some answers from Washington.
Small Biz Can Save Retirement
Giving workers access to retirement savings plans will go a long way toward staving off a fiscal crisis.
Taxing Marriages
A combination made not in heaven but by Congress and the IRS.
