Business Expenses

Taxes for Self-Employed Individuals

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As a self-employed individual, you are responsible for paying taxes on your income. Unlike employees, taxes aren’t automatically taken out of your payments. Instead, you are responsible for setting aside money for your taxes and then paying the IRS.

 

How much will I have to pay?

This depends on many factors, but as a general rule of them, we recommend putting aside at least the following percentages, depending on your income level.

Your Annual Income Your Tax Rate Estimate
< $25K 20-25%
$25K-$50K 30-35%
$50K-$75K 35-40%
$75K-$100K 40-45%
> $100K >45%

 

You can significantly reduce your taxes by claiming business deductions, like mileage and other business expenses. Everlance can track and help you maximize those deductions.

 

Do I need to file my taxes?

In most cases, yes. If your annual net earnings from self-employment are $400 or more, you have to file. Even if your earnings were lower, you still may need to (see the IRS’s Form 1040).

 

What taxes do I have to pay?

  • Self-employment tax – The self-employment tax covers Social Security and Medicare for self-employed individuals. Learn more here.
  • Income tax – Just like employees, self-employed individuals pay income tax. Your income tax is composed of your federal income tax and your state’s income tax.

 

When do I have to pay? Quarterly or annually?

  • If you think you’ll owe more than $1,000 in total taxes at the end of the year, you’re supposed to pay quarterly. Otherwise, you may be charged interest on the taxes you were supposed to pay.
  • Paying taxes quarterly is called paying your “estimated taxes”.
  • As a general rule of thumb, if you make more than $20,000 per year for your self-employed business, you’re supposed to pay quarterly.
  • That said, the IRS’s interest rate for unpaid estimated taxes is 3-5%, which is pretty low. Meaning, even if you are supposed to pay, if you have credit card or other debt, you’d probably be better off paying down that debt first – which can have interest closer to 20-25% – before paying your quarterly taxes.
  • The deadlines for paying quarterly are April 15th (your annual taxes count as your first quarterly payment), June 15th, Sept 1t, and Jan 15th.

 

How do I pay quarterly taxes?

Use the IRS’s Electronic Federal Tax Payment System (EFTPS) or send your payment by mail.

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