Working for yourself can be an exciting adventure. You get the chance to work on something that you love, to work your own hours, and you can leave your boss behind. You can pick out the clients that you would like to work on and just enjoy life so much more. But one thing that a lot of people forget about when it comes to working on their own is that they still need to pay for their taxes. Unlike working with a company, you are going to be completely in charge of all your taxes. You won’t have someone who is paying for some of your social security, taxes, or Medicare taxes. This is often going to bring about sticker shock to a lot of individuals when they first start working from home and have to pay their taxes.
When you start out with self-employment, it is a good idea to have someone on your side who is able to help you out with the taxes. Whether you are looking for someone who can help you with estimated taxes or you are interested in getting your tax returns done right and finding more deductions and credits, make sure to find the right tax professional to help you out every step of the way.
Paying Taxes
The first thing that you will have to do is pay your taxes. These taxes are usually going to be the same amount that everyone else has to pay, you just aren’t going to have your employer around to help take it out of your paycheck. This is what can make the taxes look so high; when you wait until the end of the year to pay taxes rather than doing it each month, the number can often come out much bigger than you were planning.
Don’t freak out at the first number that comes up. While this number is going to seem pretty high, there are other factors that you will need to consider before coming up with the final number. For example, there are credits and deductions, such as your home office or some of the supplies that you have to purchase for your business, that can help to lower your tax bill. Hiring a tax professional can help you to find all the deductions and credits that you qualify for so you can get that tax bill down to a more manageable number.
Paying Medicare
In addition to paying your taxes, you are going to pay some money into your Medicare fund. This is the fund that helps you out with insurance when you get into retirement. Without it, you may find that your medical bills can skyrocket as you get older. When you work for a company, they are going to take care of the Medicare costs, at least half of them, for you. But when you work on your own or own your business, you will be completely stuck with the cost of your Medicare taxes. This can get expensive, especially when added on to the other taxes and your social security fund. Paying these off throughout the year can help to save money and make this number look a bit better at the end of the year.
Paying Social Security
You will also need to pay for your social security. If you wish to have this money come back to you when you retire in a few years, you will need to pay into the account. This is another one that the employer usually helps out with so it may look like a big number when you have to handle it all on your own. If you are uncertain about how much you will have to pay into this account, make sure to find a good tax professional who can work on your side to get the best results possible.
Claiming This Right
Claiming your self-employment taxes may be a pain. You are the one who is solely responsible for all the taxes listed above and you won’t have an employer who is going to help you get these taken care of like other individuals. While there is a lot of freedom with working on your own, you need to make sure that you are taking care of your taxes early on, and even considering estimated tax payments in order to avoid a huge tax bill at the end of the year.
If you are working with a tax professional, it is much easier to claim your self-employment taxes. They will be able to take a look over your income and determine how much you are going to owe in taxes. Then they will go through and find the different deductions and credits that you may owe, including home office, purchasing materials, and paying other employees, and so on. Once these are all factored into your tax bill, you will find that the amount you owe is much less than before. Having a tax professional work with you can save a lot of time and money and could put more money back into your pocket at the end of the year.
When you are ready to file your tax return and want to make sure that you are doing it the right way, contact our professionals right away. We have the experience that is needed to get your taxes done the right way each time. Contact us today to get started.
Simon Hase, CPA