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J.K. Lasser's Guide to Self-Employment: Taxes, Tips, and Money-Saving Strategies for Schedule C Filers by Barbara Weltman

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CHAPTER 10

Paying Your Taxes

As a self-employed person, what are the taxes you have to pay? It goes beyond income taxes. You are required to pay self-employment tax if you have a profit in order to earn Social Security and Medicare credits. If your earnings are high enough, you'll pay an additional Medicare tax. And if you are effectively only an investor in your business, with others doing the heavy lifting, you may owe another additional Medicare tax.

Because you are not a W-2 employee, there's no withholding on your earnings so you have to be proactive in paying all of your taxes. You do this by making four estimated tax payments over the course of the year.

Self-Employment Tax

In a nutshell, this tax is like FICA tax, which is paid by employers and employees to cover Social Security and Medicare taxes, but instead of applying it to taxable wages it is levied on your profits. Self-employment tax includes both the employer and employee share of FICA, even though you are neither an employer nor an employee. However, you do get to deduct the so-called employer share (as explained in Chapter 7).

For 2013, self-employment tax is essentially 15.3% on net earnings (profits) up to $113,700, plus 2.9% on net earnings over this amount. However, the computation is a little more complex. Fortunately, tax preparation ...

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