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Calculating Self Employment Tax for Quarterly Payments
from:When you set out upon the road of self employment, you will find that the tax burden you've taken up is a rather daunting challenge. It doesn't have to be. The first time you find yourself calculating self employment tax to make quarterly payments, it may take quite some time. However, after the first year of making such payments, it becomes far easier to handle every time.
Generally, the self employed pay twice in Social Security and Medicare tax as the more conventionally employed do, since there is no employer to match your contribution. This is partially offset by being able to deduct half that amount from your income tax, but those savings don't come 'til the end of the year.
As such, when calculating self employment tax, you certainly want to everything as legally as possible, but you also want to make sure you don't send any money into that interest free savings account known as the US Treasury that you don't have to. That is, of course, where deductions come in.
You are legally entitled (encouraged, even) to take all your legitimate business expenses when calculating self employment tax. This means that you can write off things as wide ranging and comprehensive. It may involve anything from mileage to business furniture or even subscription services such as internet connectivity. Just be sure to save your receipts.
The IRS requires those in business for themselves to take time every 3 months, calculating self employment tax and making sure they are current with what they owe, rather than waiting 'til the end of the year. As one of the nearly 10% of people in the US who are self employed, you're treated by the IRS as something of a hybrid between an employer and employee, which in many respects, you are.
Many people prefer this scheme, as there isn't a large burden to pay the next April that you're not prepared for. However, now that you're in business for yourself, you can take the time to make sure you're sending in as little extra money each year as possible. Tax refunds are not a good savings scheme. That's part of the reason calculating self employment tax as accurately as possible when you first start up your self employment enterprise.
Consider also that the IRS bases part of the likelihood whether you'll be audited upon the percentage of the current year tax against the previous. You should make it a point to put in at least 100% of what you owed each quarter the year before if you make less than $150,000 and want to stay off that particular radar. Careful reinvestment in the business early on is just as important as diligently and accurately calculating self employment tax.
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