Ramping up with Creative Deals
Show Summary I’m excited about today’s show! My buddy, Travis Oglesby is joining us and we are going to talk about creative deals. Travis and his partners joined our coaching program…
Show Summary I’m excited about today’s show! My buddy, Travis Oglesby is joining us and we are going to talk about creative deals. Travis and his partners joined our coaching program…
In response to the coronavirus, companies across the country are pursuing coronavirus relief efforts to help people and businesses most impacted by pandemic. Tech companies are donating millions to help small businesses, healthcare workers and COVID-19 patients. Meanwhile, companies outside … Continue reading →
The post Companies Helping Coronavirus-Impacted People appeared first on SmartAsset Blog.
Building wealth isn’t necessarily second nature to anyone, but you have to start somewhere. Budgets aren’t simply a means to keep track of whether your bills are paid and which accounts are due. They’re your tool for managing money in…
Full Story
The post 4 Reasons Why Creating a Budget Can Increase Your Wealth appeared first on MintLife Blog.
Working for yourself, either as a part-time side hustle or a full-time endeavor, can be very exciting and financially rewarding. But one downside to self-employment is that you're responsible for following special tax rules. Missing tax deadlines or paying the wrong amount can lead to expensive penalties.
Let's talk about what the self-employment or SE tax is and how it compares to payroll taxes for employees. You’ll learn who must pay the SE tax, how to pay it, and tips to stay compliant when you work for yourself.
In addition to federal and applicable state income taxes, everyone must pay Social Security and Medicare taxes. These two social programs provide you with retirement benefits, disability benefits, survivor benefits, and Medicare health insurance benefits.
Many people don’t realize that when you’re a W-2 employee, your employer must pick up the tab for a portion of your taxes. Thanks to the Federal Insurance Contributions Act (FICA), employers are generally required to withhold Social Security and Medicare taxes from your paycheck and match the tax amounts you owe.
In other words, your employer pays half of your Social Security and Medicare taxes, and you pay the remaining half. Employees pay 100% of federal and state income taxes, which also get withheld from your wages and sent to the government.
When you have your own business, you’re typically responsible for paying the full amount of income taxes, including 100% of your Social Security and Medicare taxes.
But when you have your own business, you’re typically responsible for paying the full amount of income taxes, including 100% of your Social Security and Medicare taxes.
All business owners with "pass-through" income must pay the SE tax. That typically includes every business entity except C corporations (or LLCs that elect to get taxed as a corporation).
When you have a C corp or get taxed as a corporation, you work as an employee of your business. You're required to withhold all employment taxes (federal, state, Social Security, and Medicare) from your salary or wages. Other business entities allow income to pass directly to the owner(s), so it gets included in their personal tax returns.
You must pay the SE tax no matter if you call yourself a solopreneur, independent contractor, or freelancer—even if you're already receiving Social Security or Medicare benefits.
You must pay the SE tax no matter if you call yourself a solopreneur, independent contractor, or freelancer—even if you're already receiving Social Security or Medicare benefits.
For 2020, the SE tax rate is 15.3% of earnings from your business. That's a combined Social Security tax rate of 12.4 % and a Medicare tax rate of 2.9%.
For Social Security tax, you pay it on up to a maximum wage base of $137,700. You don't have to pay Social Security tax on any additional income above this threshold. However, this threshold has been increasing and is likely to continue creeping up in future years.
However, for Medicare, there is no wage base. All your income is subject to the 2.9% Medicare tax.
So, if you're self-employed with net income less than $137,700, you'd pay SE tax of 15.3% (12.4% Social Security plus 2.9% Medicare tax), plus ordinary income tax.
Remember that your future Social Security benefits get reduced if you don't claim all of your self-employment income.
If you have a high income, you must pay an extra tax of 0.9%, known as the additional Medicare tax. This surtax went into effect in 2013 with the passage of the Affordable Care Act (ACA). It applies to wages and self-employment income over these amounts by tax filing status for 2020:
As I mentioned, when you’re an employee, your employer withholds money for various taxes from your paychecks and sends it to the government on your behalf. This pay-as-you-go system was created to make sure you pay all taxes owed by the end of the year.
You must make quarterly estimated tax payments if you expect to owe at least $1,000 in taxes, including the SE tax.
When you’re self-employed, you also have to keep up with taxes throughout the year. You must make quarterly estimated tax payments if you expect to owe at least $1,000 in taxes, including the SE tax.
Each payment should be one-fourth of the total you expect to owe. Estimated payments are generally due on:
But when the due date falls on a weekend or holiday, it shifts to the next business day. Your state may also require estimated tax payments and may have different deadlines.
Figuring estimated payments can be extremely confusing when you’re self-employed because many entrepreneurs don’t have the faintest idea how much they’ll make from one week to the next, much less how much tax they can expect to pay. Nonetheless, you must make your best guesstimate.
If you earn more than you estimated, you can pay more on any remaining quarterly tax payments. If you earn less, you can reduce them or apply any overpayments to next year’s estimated payments.
If you (or your spouse, if you file taxes jointly) have a W-2 job in addition to self-employment income, you can increase your tax withholding from earnings at your job instead of making estimated payments. To do this, you or your spouse must file an updated Form W-4 with your employer.
The IRS has a Tax Withholding Estimator to help you calculate the right amount to withhold from your pay for your individual or joint taxes.
To figure and pay your estimated taxes, use Form 1040-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations. These forms contain blank vouchers you can use to mail in your payments, or you can submit funds electronically.
When you have a complicated situation, including having business income, one of your new best friends should be a tax accountant.
For much more information about running a small business successfully, check out my newest book, Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers. Part four, Understanding Business Taxes, covers everything you need to know to comply and stay out of trouble.
From personal experience, I can tell you that when you have a complicated situation, including having business income, one of your new best friends should be a tax accountant. Find one who listens well and seems to understand the kind of work you're doing.
A good accountant will help you calculate your estimated quarterly taxes, claim tax deductions, and save you money by helping you take advantage of every tax benefit that's allowed when you're self-employed. In Money-Smart Solopreneur, I recommend various software, online services, and apps to help you track expenses, deductions, and tax deadlines that will keep your business running smoothly.
The number of people receiving unemployment compensation has hit record numbers. Let’s look at how unemployment compensation can affect your credit score.
Full Story
The post Does Unemployment Affect My Credit Score? appeared first on MintLife Blog.
According to the U.S. Department of Agriculture (USDA), raising a child to the age of 18 sets families back an average of $233,610, and thatâs for each child. This figure doesnât even include the cost of college, which is growing faster than inflation. CollegeBoard data found that for the 2019-2020 school year, the average in-state, […]
The post 10 Financial Steps to Take Before Having Kids appeared first on Good Financial Cents®.
Love the idea of working with animals, but don’t have the resources or desire to go through vet school? You can still put your love of pets or wildlife to work in your career. Here are twelve jobs working with animals that can pay the bills for any animal lover. 1. Groomer Groomers help pets… Read More
The post 12 Jobs Working with Animals That Pay Good Money appeared first on Credit.com.
Saving for retirement seems like a long-term plan, but itâs essential to understand the nuances of your investments right from the start. If you work for a company offering employee plans, you may have heard…
The post What’s the Difference Between a 401(k) and 403(b)? appeared first on Crediful.
This page may include affiliate links. Please see the disclosure page for more information. You may have heard of Dave Ramseyâs debt snowball as a popular method for getting out of debt. Weâre going to share how the debt snowball works so you can decide whether itâs a smart way for you to get your debt paid…
The post How the Debt Snowball Works appeared first on Debt Discipline.
Around 6.1% of employed Americans worked for themselves in 2019, yet the ranks of the self-employed might increase among certain professions more than others. By 2026, the U.S. Bureau of Labor Statistics projects that self-employment will rise by nearly 8%. Some self-employed professionals experience high pay in addition to increased flexibility. Dentists, for example, are […]
The post Why Itâs Harder to Get Credit When Youâre Self-Employed appeared first on Good Financial Cents®.