Friday February 1, 2013
Many jobs today are classified as home-based, freelance or contract based. More so, having your own business may it be small or large scale is considered as a self-employment.
Some of you may ask "If I am self-employed, do I have a tax to pay?" The answer is YES. A self-employed person is taxed based on his or her NET income.
This tax is known as an SE Tax or Self-Employment Tax and is based on 15.3% of your NET Income, which are the total receipts less your expenses. This tax is for both you as an employee and employer of your business for Social Security and Medicare benefits.
Sample computation is as follows:
If for example, you are earning a total of $100,000 (annual net income), you are required to pay a sum of $15,300 for the Self-Employment Tax.
$100,000 x 15.3% = $15,300
The key to minimize your tax liability is to ensure you are claiming all the deductions, and expenses possible. Another option is to evaluate different types of business structures, such as an S-Corporation.
We will be discussing more options in upcoming blogs!