When you’re self-employed, navigating the tax landscape can seem daunting. However, with some guidance and understanding, you can successfully file your self-employment taxes without losing your sanity. Here at Clearview Accounting, we’re all about making numbers your friend, so let’s demystify self-employment taxes.

1. Understanding Self-Employment Taxes

Self-employment taxes are primarily made up of Social Security and Medicare taxes. When you’re an employee, your employer pays half of these taxes, and you pay the other half. However, when you’re self-employed, you’re responsible for the entire amount. As of my knowledge cutoff in September 2021, the self-employment tax rate is 15.3%.

2. Determine If You Need to Pay Self-Employment Tax

You must pay self-employment tax and file Schedule SE (Form 1040) if either of the following applies:

• Your net earnings from self-employment (excluding church employee income) were $400 or more.
• You had a church employee income of $108.28 or more.

3. Calculating Your Net Earnings

To figure out your net earnings from self-employment, you will subtract your business expenses from your business revenues. These calculations are done on Schedule C (Form 1040), Profit or Loss from Business.

4. Quarterly Estimated Taxes

As a self-employed individual, generally, you’re required to pay estimated taxes quarterly, not just yearly. These payments include both your income tax and your self-employment tax. The IRS provides Form 1040-ES for you to calculate and pay these taxes.

5. Deductions

The good news is that you can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax, not either your net earnings from self-employment or your self-employment tax.

Also, self-employed individuals can deduct business expenses, health insurance premiums, and in some cases, contributions to a self-employed retirement plan.

6. Filing Your Tax Return

You’ll report your self-employment income and expenses on Schedule C or C-EZ (Form 1040). The calculated net income from Schedule C is then transferred to Form 1040 to calculate income tax and to Schedule SE to calculate self-employment tax.

Self-employment taxes can be a complex subject, but they don’t have to be intimidating. With a little planning and organization, you can accurately file your self-employment taxes and keep more of your hard-earned money in your pocket.

At Clearview Accounting, we’re here to help you gain a clear view of your financial situation and guide you on your path to success. Have questions? We’re the friendly accountants who are always ready to help!