Understanding Self-Employment Taxes: Social Security and Medicare for Small Business Owners
Understanding self-employment taxes can be overwhelming for small business owners. In this guide, we'll break down the basics of social security and medicare taxes for self-employed individuals.
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As a small business owner, understanding self-employment taxes can be overwhelming. In this guide, we'll break down the basics of social security and medicare taxes for self-employed individuals. From filing requirements to tax deductions, we'll cover everything you need to know to stay compliant with the IRS.
As a self-employed individual, you're responsible for paying both social security and medicare taxes. These taxes are typically withheld from your paycheck if you're employed by someone else. However, as a self-employed individual, you'll need to pay these taxes yourself.
Social security tax, also known as Old-Age, Survivors, and Disability Insurance (OASDI), is a tax that funds social security benefits. As a self-employed individual, you'll need to pay 12.4% of your net earnings from self-employment in social security taxes. This tax is typically split between you and the government, with you paying 6.2% and the government paying 6.2%.
Medicare tax, also known as Hospital Insurance (HI), is a tax that funds medicare benefits. As a self-employed individual, you'll need to pay 2.9% of your net earnings from self-employment in medicare taxes. This tax is also typically split between you and the government, with you paying 1.45% and the government paying 1.45%.
In addition to paying social security and medicare taxes, you'll also need to file a Schedule SE (Form 1040) with your tax return. This form is used to report your self-employment income and calculate your self-employment taxes.
There are also some tax deductions available to self-employed individuals. For example, you can deduct business expenses, such as rent, utilities, and equipment, from your gross income. You can also deduct half of your self-employment taxes as a business expense.
In this guide, we'll cover the basics of self-employment taxes, including how to calculate your taxes, file your tax return, and take advantage of tax deductions. We'll also provide some tips and best practices for staying compliant with the IRS.
