Posted by QuickReadAbout.com Staff in Even as your enthusiasm about finally making some money in your home based business is beginning to build, in the back of your mind the nagging worry about the tax ramifications that your sudden income will generate cannot be denied. Sure, you probably read up on tax liabilities, but more than likely with an eye to tax deductions rather than self-employment tax.
Self-employment tax rules for the fiscally challenged are by no means all-inclusive, but they do provide a good rule of thumb that helps you understand how much of a hit you can expect Uncle Sam to take. When you are in business for yourself this is very important information to have and understand.
Many a myth has sprung up around self-employment taxes, but in essence they are little more than your paying into the social security and also Medicare funds. In the past, you saw these deductions on your paychecks.
At this point in time, your self-employment tax rate – regardless of income below $94,200 – is set at 15.3%.
A much-overlooked rule dictates that you are supposed to pay your estimated self-employment tax throughout the year. This is true especially when you find at the end of the last year that you owed taxes – of any kind – exceeding $999. Estimated tax payments may be made during the year and thus will ease the hit you may take at the end of the year.
Interestingly, if you just started out with your home base business, you might be able to get away with not paying self-employment tax, if your net income was at or below $399. At this point it is still considered hobby income and will not be subject to the tax.
If in doubt, you will be wise to invest some time and money and visit with your friendly neighborhood accountant who should be able to give you some tips as to what you might have to look forward to when the taxes come due. In addition to the foregoing, investing the time now and discussing monies owed as well as allowable expenses with your tax professional will prevent you from claiming – or attempting to claim – deductions for which you either do not qualify or only have a limited and conditional claim.
Those who are truly fiscally challenged usually opt to have a tax preparer handle their business taxes at least during the first year so as to ensure that each and every schedule is included, the majority of deductions makes it into the return, and a good starting record is established that may serve as an example for the coming year when the entrepreneur might try to go it alone. Since the money you spend on a professional tax preparer is deductible, it is indeed a wise expense!
As you can see, the self employment tax is not really something to be dreaded and feared, but it is a tax that must be paid and when you fail to make estimated payments throughout the year, you will find that the end of the year hit may be especially hard to take.