Bonsai Tax is built just for self-employed workers.
It helps tens of thousands of people across the country save an average of $5,600 on their taxes.
This handy book will guide through best practices to follow when calculating your freelance taxes.
The self employment tax refers to your share of Social Security and Medicare, two federal taxes. If you are a self employed business owner, then you will need to pay a tax rate of 15.3% and will need to be added on to your income tax.
The amount you are required to pay when you file will be similar to the amount that is withheld from the paychecks of many other wage earners. Your tax amount will include your self employment tax of 15.3% - 12.4% Social Security and 2.9% Medicare.
You can also apply deductions to your rate that makes it lower. For instance, you may be able to get it down to 14% if you qualify for enough deductions. To lower the burden, Oregon also has made it possible to deduct half of that you pay in self employment taxes to be deducted when filing income taxes.
The number of your earnings that can be part of the self employment tax is 92.35% of your net earnings. You can find that by subtracting your business expenses from the gross income of your business.
Apply the 15.3% tax rate to your net earnings from self employment to figure out how much you owe the government. When filing as an individual, your refund will cover less than 90% of your tax liability or 100% of your tax liability from last year, depending on which one is lower.
The maxim amount is 110% if your gross income last year was $75,000. If you are filing as a married couple, then $150,000 will be the max amount.
The US also requires that you pay taxes as you go, so you will want to make sure that you are making your quarterly estimated tax payments if you suspect you will owe over $1,000 in federal income taxes.
The estimated payments should be made on:
If the due date were to fall on a weekend or a legal holiday, you would have to wait to file until the next business day. That is why the date is sometimes a day or two after the 15th when it comes to filing your taxes.
You can pay your taxes electronically or through the mail- whichever is easier for you. You may be required to make them electronically unless it puts you at some kind of disadvantage when filing.
You will need the IRS Form 1040ES to file your estimated tax payments. When you do this, you will also need Schedule C or C-EZ and Schedule SE. Depending on your specific work situation, you might need different forms. The IRS website has all of the forms available to look at. Simply go to their business section and go to self employed.
You will use the income or loss amount from your Schedule C to calculate the amount of taxes you need to pay for your Social Security and Medicare taxes.