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If you’re self-employed, what business taxes do you have to file?
I’m tossing around the idea of starting a tech consulting firm, but I’m curious to know where I can find information to research the tax side of things. If you’re self-employed, do you have to pay higher taxes than if you work for a corporation? What are the tax benefits of being self-employed?
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2 Answers
It depends on a great many factors the most important of which is the form of business you select - sole proprietorship, LLC, partnership or LLP, S Corporation or a C Corporation. In some cases income is reported on your 1040 and in others you will be filing a business tax form of one sort or another. For complete information on the federal tax requirements for all forms of business, paying estimated taxes, and other tax issues go to http://www.irs.gov/businesses/index.html?navmenu=menu1. I cannot encourage you enough to sign up for their monthly newsletter that can keep you abreast of all changes in the laws, rules governing deductions, and general information that is e-mailed to you.
For state taxes, check out your state website as it can vary tremendously. For instance if you file a 1040 as a member of an LLC with the IRS, one state may treat that as personal income while another might want that as business income. States like Texas that has no state income tax, does have what they call a franchise tax for businesses. Normally service businesses do not require a sales tax permit unless a product is included with the service such as a mechanic might do.
Be advised that if you have a form of business that you must register with your state, if you have locations in other states, you will need to register with each state as a foreign entity and pay taxes in that state as well on income derived from operations in that state.
There are many deductions available for a business that an employee cannot use such as office supplies, equipment, insurance, marketing, business phones and part of cell phone costs, legal and accounting advice, and certain auto expenses as well as possibly rent.
Send 25 percent of every check to the IRS for your quarterly payments. You have to pay both halves of Social Security, meaning 15 percent of all income off the top until some high income number.
Advantages are legally deducting expenses you have as a good IT employee, such as books, computers, training you pay for, and the like. Your home office is deductible, and that includes a percentage of your mortgage or rent, utilities, etc.
The best part about being a consultant rather than a corporate employee? You can charge for those long, boring meetings you have to sit through. Smile inwardly as your meter clicks with each slowly passing quarter hour.
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