Tax Help For Self-employed

Self-employment is the state where the individual works for one's self rather than rendering services to another person or a company. If the individual is the employer or the personal owner of a business or trade, it is also considered as a form of self-employment. There is a significant difference between being self-employed and being the business owner. To be categorized as self-employed and also the business owner, the individual must be hands-on enough rather than hiring employees to do the different tasks including managerial activities. The latter describes the characteristic of being only a business owner.

Even self-employed individuals are required to pay a tax specific to that sector. This tax is called the Self-employment tax (SE tax). According to the Internal Revenue Service (IRS), the SE tax is comprised by Medicare and social security taxes. This is similar to the social security and Medicare taxes that are withheld from the salary of ordinary employees. In filing SE taxes, the form 1040-Schedule C must be used. This form is used to list income and expenses with regards to self-employment. If there is no complexity with the self-employment status, the Form 1040-Schedule C-EZ will be used.

As of 2009, the SE tax rate is 15.3%; this tax rate encompasses the two portions which are the tax for social security and for Medicare. The first $102,000 of the maximum earnings is the only amount that is subjected to SE tax. Self-employment tax can be deducted by adjusting the adjusted gross income. There are certain parameters to consider regarding the need of paying SE tax; if the individual's net earnings from self-employment amount to $400 or more and church employment income amounts to $108.28 or more, it is a must to file SE tax.

There are several tips that may be helpful when dealing with self-employment tax. It will be useful to keep good records of all the income and expenses incurred by the business. It is a must to keep receipts and other documents that pertains to expenses in order to keep on-track with the status of the business. Office space rents and mortgage as well as utilities can be deducted to reduce the amount of SE tax. Medical expenses can also be deducted by employing family members legally. It is also advisable to seek for a retirement plan, this will not only affect the taxes but it will be a great avenue for saving money for the future.