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Self-Employed? Map Out Tax Details

Have you joined the ranks of the self-employed?  You're not alone.  According to the Bureau of Labor Statistics, more than 14.4 million Americans were counted as being self-employed in 2014.  Some estimates place the total even higher.

In addition to major lifestyle changes, self-employment really is whole new ballgame when it comes to paying your taxes.  Now, you're responsible for reporting all of your own income and deductions for the business on Schedule C.

What makes Schedule C different?  If you've been treated as an employee until now, you've filed a Form 1040 listing wages paid by your employer, as reported on your W-2.  But you generally weren't able to deduct any expenses related to your job (other than maybe qualifying for a limited deduction for unreimbursed employee business expenses). Now the income and deductions from your business are largely confined to this one tax form, and you're likely to be able to write off several costs that aren't deductible for regular employees.

Of course, Schedule C isn't the whole story.  For instance, you may qualify for a generous Section 179 deduction for equipment or other business-related purchases you've added during the year.  On 2014 returns, the maximum deduction is $500,000 (scheduled to drop to $25,000 in 2015), plus you may be entitled to "bonus" depreciation.  In addition, if you work out of your home, as many self-employed people do, you may be able to claim a home office deduction.  Finally, you will have to cope with numerous other complications, such as the stringent rules and limits applying to deductions for business travel and business use of a vehicle.

Self-employment income is taxed at ordinary income rates, currently topping out at 39.6% on the federal level. Typically, your same net amount of self-employment income also is subject to state income tax under the rules of the state where you live. 

There are other factors to consider, too.  When you file your 1040, you'll also need to pay self-employment tax, the equivalent of the Social Security and Medicare taxes that employees must pay.  But employers typically pick up half of the amount owed on behalf of a worker.  Because you're self-employed, you pay both the employer and the employee shares, making your tax twice what you'd owe if you were an employee.  For the 2014 tax year, the self-employment tax is equal to 15.3% on self-employment income up to $117,000 ($118,500 in 2015) and 2.9% on amounts above that threshold.  But you do get to deduct half of the self-employment tax.

Software packages can help you file your own tax return, but professional guidance may still be warranted. Don't get in over your head.



INDEX
  • Six Tax Items For Small Businesses
  • Now Is A Perfect Time To Open A New Business
  • Do You Know If Your Business Really Is Small?
  • 4 Estate Issues For Business Owners
  • Self-Employed? Map Out Tax Details
  • 10 Easy Steps To Take If Opening A New Business
  • To Buy Or Not To Buy: That Is The Business Franchise Question
  • Ever Considered Helping Your Adult Child Open A Business?
  • Do You Know What Kind Of Business Not To Open?
  • Do You Plan To Move Your Business To A New State?
  • Dispel These 7 Popular Myths About Retirement
  • 4 Retirement Plan Options For Your Small Business
  • Are Stocks Overpriced And Forming A Bubble?
  • 4 Steps To Creating A Dynamic Business Budget
  • Can An Underfunded Small Business Startup Be Successful?
  • What Happens If You Have Excess Capital Losses?
  • This Is Not Granddad's 'Defined Benefit Plan'
  • Despite Much Pessimism, Slow Growth Persists
  • How To Take Your Section 179 Deduction To The Max
  • Squeeze More Out Of Bonus Depreciation Deductions
  • A Common Error In Powers Of Attorney
  • For The Self-Employed: 4 Retirement Plan Choices
  • Which States Are The Most Friendly To Businesses?
  • How Economic Myths Distort Investment Outlook
  • Don't Forget About Roth 401(k)
  • REITs: A Great Diversification Investment
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • The Twenty Top Tax Breaks In The New 2010 Tax Act
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  • 401(k) Alternatives For Business Owners
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  • Employers Find Ways To Mitigate Liability On 401(k)s
  • Working Longer: What's A Post-Retirement Job Worth?
  • Slash Taxes By Swapping Like-Kind Assets
  • Transferring The Family Business To Your Heirs
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  • Risk Management
  • Estate Taxes And The Obama Administration
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  • Avoiding The IRA Rollover Crackdown
  • Ruling Cites Business Owner Responsibility to 401 (k) Plans
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  • Small Business And Work Opportunity Tax Act
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  • Free Credit Reports Available Online
  • Understanding the Importance of a Fiduciary Standard
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  • Timber As A Liquid Investment
  • Timber Facts
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  • Bank Loan Funds - A Primer
  • Ethanol: Salvation or Panacea?
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  • A Primer On Managed Futures
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  • The Case For Industrial Metals
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • Know The Score
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
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  • Ways To Improve The Score
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft : Help Is On Its Way
  • Identity Theft: Tips To Protect Yourself
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Exit Gracefully: How Business Owners Should Plan For A Comfortable Retirement
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • IRS Refuses Change Of Section 179 Election To Expense Depreciable Property
  • Small Businesses Need To Be Aggressive On Costs
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Home Office Deductions: Hoops To Jump Through
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • Year-End Tax Defferal Planning
  • How To Find A Great Financial Advisor
  • Is It Time To Find A New Financial Advisor?
  • What Is Risk?
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • Businesses Receive Temporary Depreciation Bonus
  • Understanding Deflation
  • Is Your 401(k) Plan A Failure?
  • Succession Planning: Developing A Plan For Your Business
  • The ERISA Retirement Plan Law Spells Out Fiduciary Issues
  • Evaluating The Quality Of A Company's Earnings
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Tax Issues To Consider When Buying A Long-Term Care Policy
  • Yesterday's Great Companies
  • Businesses Should Be Aware Of States' Use Taxes
  • Expanded Retirement Plan Contribution Limits Create New Opportunities For Business Owners
  • Succession Planning: Developing A Plan For Your Business



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