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Self employment taxes: What should I expect?
I have never been self employed before, so I have no experience with self employment taxes. What should I expect?
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2 Answers
IRS has a great deal of information for self-employed individuals. Most important, you have to pay estimated taxes since you no longer receive a paycheck. I provided a link to the IRS small business/self-employed tax center and to about.com's explanation of self-employment and self-employment taxes.
I strongly recommend that you meet with a local accountant to review the rules and to determine the amount, if any, you should pay for estimated taxes. The first payment for 2010 is due April 15. Payments for the 2nd, 3rd and 4th quarters are due June 15, Sept 15, and January 15, respectively.
http://www.irs.gov/businesses/small/index.html
http://biztaxlaw.about.com/od/businesstaxes/a/selfemploytax.htm
Hi Bob,
If you are operating as a sole proprietor, and not through an LLC or Corporate Structure, such as C corp or Sub-S corp, you will run biz revenue and exp through Schedule C, which you can find with an internet search.
You will want to track business expenses and mileage separately from personal expenses and mileage, and I'd recommend a separate checking account. You will pay federal, and if applicable, state income taxes on net income, which generally is the difference between rev and exp. You will also owe Self-Employment Income, reportable on Sched SE, which effectively gives you the opportunity to pay both parts of the FICA tax. In 2010, this means that SE tax is 15.3% of net income.
You are required to pay taxes. You are not required to make estimated payments. If you choose not to make estimated pymts, however, you run two risks. The first is the possibility of an underpayment penalty assessed by the IRS. The second, and more practical consideration, is that you will have a tax liability due, and may or may not have the cash available to pay the taxes.
That's enough for now. If you would like more conversation, you are welcome to shoot me an email at rbrunson@centurionag.com.
Warm regards,
Randy
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