Monday, May 13, 2013

Self-Employment Tax

If you own a business or are considered an independent contractor by your employer, you probably will need to make estimated tax payments on a quarterly basis.  Other situations where quarterly tax payments might apply include income from interest, dividends and capital gains.  Also, if you suspect you will owe $1,000 or more to the IRS, you should be making quarterly payments. The IRS wants to be collecting taxes from you throughout the year and waiting until you file your returns to pay the taxes you owe will result in significant penalty and interest charges.  The quarterly due dates for 2013 are April 15 (hopefully you’ve paid that one already), June 17, September 16, 2013 and January 15, 2014.  Your tax professional can help you determine the best estimate for quarterly payments.  They should be equal amounts unless your situation changes during the year causing the estimate to be thrown out of whack. 

In addition to the quarterly payments, business owners are generally required to pay self-employment tax along with the quarterly taxes.  Self-employment tax covers the owner’s participation in Social Security and Medicare.  Self-employment tax is calculated using Schedule SE and the employer portion of the self-employment tax can be deducted from your gross income.  This will only affect your income tax.  It does not affect your net earnings or your self-employment tax.  Self-employed individuals can also deduct the cost of health insurance.    Consult with a tax professional for details regarding your specific situation. 

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