What You Should Know About Self Employment Taxes
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If you're recently self-employed, don't overlook the unique tax considerations that come with being your own boss.

Self-employment has many potential advantages, including being able to set your own hours or work from home. But it comes with some headaches, too — in particular, preparing for, filing, and paying self-employment taxes.

The self-employment tax is a Medicare and Social Security tax on the earnings of a self-employed individual, which you'll have to pay in addition to income tax and any other applicable taxes.

If you've worked for other employers, you've probably noted on your paychecks where your employer deducted Medicare and Social Security contributions from each check for you. If you're self-employed, these contributions are essentially made through your payment of the appropriate self-employment taxes.

When you're self-employed and subject to the self-employment tax, dealing with taxes is no longer an annual activity. It's a quarterly activity that requires considerable preparation and recordkeeping on your part, so you'll want to consider these important factors and make sure managing your taxes is a priority:

1. Find out if the IRS thinks you're self-employed.

If you're in business for yourself, work as an independent contractor or sole proprietor, or are a member of a partnership that carries on a trade or business, it's likely you're required to pay self-employment taxes. Even if you are employed full time by someone other than yourself, and your self-employment business is a part-time endeavor, the IRS likely considers you to be a self-employed individual.

2. Determine whether you meet the self-employment income threshold.

Not everyone who is self-employed has to pay self-employment taxes on their income. If your net earnings meet the IRS threshold of $400 or more, you must pay self-employment taxes in addition to your other tax obligations, including income.

Determine your earnings by subtracting your business expenses from your business income. If what's left is a profit of $400 or more, you'll need to pay taxes on that amount. Also, even if you do not owe self-employment taxes, you'll want to be aware of tax filing requirements, which may obligate you to file a tax return regardless.

3. Determine whether you must pay quarterly estimated taxes.

The IRS requires that self-employed individuals pay estimated taxes every quarter as long as you expect to owe more than $1,000 for the year. The IRS provides a worksheet to help you figure out how much you'll owe each quarter.

4. Determine how much you will have to pay.

For wages earned in 2017, the self-employment tax rate is 15.3 percent for the first $127,000 — the rate is higher for income above that threshold; income taxes are paid in addition to that amount.

5. Deduct self-employment expenses.

When you're self-employed, you can deduct certain kinds of business expenses from your tax bill. For instance, if you work from home, you may be able to deduct a portion of your mortgage or rent, as well as a portion of other bills like heat.

You may also be able to deduct the cost of doing business, such as meeting a customer for lunch or your monthly cell phone bill if you use your cell phone primarily for work — but you may only deduct 50 percent of the cost of meals.

Keep detailed records of all business expenses throughout the year. You might want to use a separate credit card or business bank account just for your business, which makes it easier to keep a paper trail of business expenses.

A tax professional with experience working with self-employed people can help you understand these and other tax-related issues. For more information on filing taxes, visit the Regions Tax Center.

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This information is general in nature and is provided for educational purposes only. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation.