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Common Self-Employment Tax Questions
What is the self-employment tax rate?
The 2013 self-employment tax rate is 15.3% on your first $130,700 of income. That breaks down to 12.4% for Social Security taxes and 2.9% for Medicare taxes. Of course, deductions and other factors can change this accounting, but setting aside at least 15.3% of your 2013 for taxes is a great place to start. If you’re unsure how much you’ll be taxed, it’s a good idea to speak with an accountant or ask a tax attorney a question.
Is there a self-employment tax form?
Yes, there is a self-employment tax form. It’s called an SE 1040. The form itself has a flowchart that can help you decide whether you need to fill out a long or short version of SE 1040, based on how much income you made, whether any of involved tips, etc. Since mistakes can sometimes be costly, considering asking a tax attorney about self-employment taxes if you’re confused on how to start.
What are some common self-employment tax deductions?
While construction contractors probably know they can write off materials they use for their jobs, there are a few common self-employment tax deductions everyone should know about. If you work from home, for example, you may be able to write off a phone line, your internet service, and other costs you’d incur if you had an office elsewhere. You can also write off part of your car ownership expenses if you use that in your work. And, if you have an IRA, you may be able to save when taxes come due as well.
Does the ACA healthcare tax apply to sole proprietors?
Self-employed people will in fact need to have health insurance, but not until 2014. That means if you are self-employed and did not have health coverage last year, you do not have to pay a penalty on your 2013 taxes. You’ll need to purchase some kind of health insurance by March 31st, 2014 in order to avoid a penalty next year, however.
What's the benefit to incorporating?
If you're self-employed, incorporating your business can save you hassles come tax season. Moreover, incorporating separates your personal and business assets, so your personal money can be protected in case your business falls on the wrong side of a fine or lawsuit.
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