Monthly Archives September 2020

Self-Employment Tax: What It Is, How to Calculate It

Calculating your quarterly estimated taxes involves estimating your adjusted gross income, taxable income, taxes, deductions and credits for the year. Using a self-employment tax estimator tool or consulting with a tax professional can help simplify this process. Paying quarterly estimated taxes might seem like a hassle, especially when you’re busy running your business. However, with a bit of planning and organization, it becomes a manageable part of your financial routine. By understanding the quarterly tax schedule, calculating what you owe and setting aside money for taxes, you can avoid surprises and penalties.

Most agencies have very helpful people to call if you need assistance. For folks accustomed to working for others, the idea of working for yourself might seem idyllic. You’re your own boss, you set your schedule, and often you can work from home. Out of 150 million U.S. workers, about 16 million are self-employed, Pew Research Center reports.

Known for its high level of annual rainfall, Washington state’s largest city has much more to offer that just water. Seattle, Washington houses a population of close to 620,000 and it the 15th largest city in the United States. Located between Pudget Sound and Lake Washington, the city is a major gateway for travelers going to Asia and Alaska.

However, your accountant can help you save money by knowing certain deductions and rules that you may not be aware of yourself. If you send the IRS money at the end of January, and then you end up having a pretty bad February and March, you might really wish you could have that $306 back to help make ends meet. Your whole quarterly payment might work out to be only $500, and you would have already contributed more than half of that in the first month alone. If you made or received a payment as a small business or self-employed (individual), you are most likely required to file an information return to the IRS. In order to report your Social Security and Medicare taxes, you must file Schedule SE (Form 1040 or 1040-SR ), Self-Employment TaxPDF. Use the income or loss calculated on Schedule C to calculate the amount of Social Security and Medicare taxes you should have paid during the year.

There is also a statewide tax on real estate sales in Washington. This tax, officially called the real estate excise tax (REET), is equal to a specific percentage of the price of the home being sold, and it is typically paid by the seller. Cities also have the option to levy an additional 0.25% tax on property sales. If you’re considering making the plunge into self-employment, you should consult a tax advisor. That’s especially true if you (or you and your spouse filing taxes jointly) have both wage and self-employment income in a given year. Here are some general guidelines to help you understand what’s involved (current as of mid-2022).

  1. If you made or received a payment as a small business or self-employed (individual), you are most likely required to file an information return to the IRS.
  2. You do this by subtracting your business expenses from your business income.
  3. Using a self-employment tax estimator tool or consulting with a tax professional can help simplify this process.
  4. As noted, the self-employment tax rate is 15.3% of net earnings in 2023.
  5. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves.

They can include equipment, software subscriptions, office supplies, travel costs, and even a portion of expenses related to working from home. Freelancers can reduce their taxable income by deducting these expenses from their self-employed income by keeping accurate records and receipts. If you own a sole-proprietorship, or work primarily as an independent contractor, you need to pay the “self-employment tax” if you derive any considerable amount of income from self-employment. You must pay these taxes if your income from self-employment is more than annually. In the U.S., Seattle, Washington included, almost everyone who is employed during most of their adult life is qualified for Social Security and Medicare benefits when they retire.

What is self-employment tax?

If this is your first year being self-employed, you will need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter. How much you pay in federal income taxes depends on a few different factors, like your marital status, salary and if you want any additional withholdings. You have to enter information about your filing status and dependents on your Form W-4, which allows your employer to know how much to withhold from your paycheck. That’s why your employer will require you to fill out a W-4 whenever you start a new job.

Tax Season 2024: These 6 Tax Mistakes Could Trigger an IRS Audit

Great question and No.  Every level of government wants to tax you…and it’s easy and reasonable to get them confused. Kurt was born and raised in Seattle, graduated from Bishop Blanchet High School and attended both the University of Washington and Seattle University. Additionally, he is an active member on the Board of Directors for a local credit union.

How to Send in Your Estimated Quarterly Tax Payment (EQ$) to the IRS

You usually can deduct your loss from gross income on page 1 of Form 1040 or 1040-SR. See Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C) for more information. If you filed business taxes last year, usually your tax preparation software or accountant will provide you with a recommended amount for you to pay. Special rules apply to workers who perform in-home services for elderly or disabled individuals (caregivers).

Also, you can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct Social Security and Medicare taxes. Self-employment can score you a bunch of sweet tax deductions, too. One is the qualified business income deduction, which lets you take an income tax deduction for as much as 20% of your self-employment net income. Plus, there are other deductions available for your home office, health insurance and more. That rate is the sum of 12.4% for Social Security and 2.9% for Medicare.

Lawmakers have considered introducing a state income tax in recent years, but no attempt has been successful thus far. While local sales taxes in Seattle, Tacoma and some other metro areas are significantly higher than the national average, all areas in Washington are devoid of local income taxes. The majority of self-employed people will file as sole proprietors, listing their business expenses and income on Schedule C of their personal tax return (Form 1040).

If you work with an accountant, use a reputable CPA, and follow their advice. Washington state self employment tax federal requirement is Form 1040-ES, Estimated Tax for Individuals. As much as I deeply appreciated the time he took in looking over the information, I decided it was best not to pursue the issue.

One good rule of thumb is to set aside 30% of your income for your taxes for the year. If you have state taxes, you may need to adjust the amount you save to include your state taxes. You’ll need to file self-employment taxes if your business made net earnings of $400 or more. Married couples business
The employment tax requirements for family employees may vary from those that apply to other employees.

An Example for Calculating Your Taxes Owed

But since cities and counties collect additional sales taxes on top of that rate, rates are typically at least 8%, and sometimes higher than 10%. The table below shows sales tax rates for all of the counties in Washington. As a self-employed individual, you may have to file Estimated Taxes quarterly. You can use these self employed taxes seattle estimated tax payments to pay your self-employment tax. Refer to the Estimated Taxes page and Publication 505, Tax Withholding and Estimated Tax for more details on paying your self-employment tax with Estimated taxes. Another thing you can do is put more of your salary in accounts like a 401(k), HSA or FSA.

date:  Sep 30, 2020 comments:  0
by:  smartservices category:  Bookkeeping Read More