Income Tax On Self Employed Earnings

Income Tax On Self Employed Earnings

Do you want to learn more about income tax on self employed earnings? Below we have described the key information that you need to know if you started to work as self employed.

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Self Employment Tax Self Employed Earnings

Individual owners and partners are subject to the self-employment tax if net earnings from self employment is 0 or more.

This is why it is important to learn about income tax on self employed earnings

If net earnings from a self employed business are significantly less than $400 and you don’t owe self employed taxation and don’t have to file Program SE.

What Earnings From Self Employment?

Net Earnings from Self Employment and Internet Gain reported on Schedule C are two Distinct numbers.

Schedule C net profit is computed first.

Then, net gain per List C is taken to Schedule SE where self employed tax is calculated.

Net earnings from self employment is calculated by multiplying net profit shown in Table C, line 31 by a fixed percentage of 92.35% .

The 92.35% is preprinted on Program SE, line 4 of Section A Brief Program SE and 4a of Department B Long Program SE. Example:

• You show a net gain on line 31 of Program C of 20,000.
• Net earnings from self employment is 18,470, calculated as follows: $20, 000 x 9235 equals $18,470

FICA Taxes

FICA stands for Federal Insurance Contributions Act and can be known as the federal payroll tax.

FICA taxes include Social Security and Medicare, that are federal programs that offer benefits for retirees, the disabled, and children of deceased employees.

The total FICA rate is 15.3%.

Employees and employers each pay one half the 15.3%.

Self employed persons, and on the other hand, are subject to the full 15.3%.

The 92.35% adjustment on Form SE serves to reduce the Program C net profit by 7.65% .

Self employed men and women get to deduct one half the self employed tax reported on Program SE on the front of Form 1040 as an above the line deduction, which lowers adjusted gross income.

The term, above the line deduction, means you don’t need to itemize your deductions or claim the standard deduction to claim this type of deduction.

Always check with a tax expert who specialises in your area to see what specific figures apply to you.

Claiming All Of Your Tax Deductions

See Program 1 of Form 1040 for a list of those deductions.

Starting in 2018, the deductible part of self employed taxes are entered on Form 1040, Program 1, Additional Income and Adjustments to Income.

Line 27 of Program 1 can be where all adjustments to Income are entered, including the deduction for self employed tax.

The total of all adjustments to income on Program 1 can be entered on line 36 of Program 1, which can be subtracted from Total income on Form 1040, line 6.

The outcome can be entered on Form 1040, line 7, Adjusted gross income.

FreshBooks Self Employed

For Freelancers and Independent Contractors, you can get a free trial on FreshBooks Accounting Software by clicking here.

This is good because you can organize your financial data into one central accounting system on the cloud.

And you will receive the following advantages:

• The software is kept up to date
• Your data kept secure
• Anytime, anyplace data access.
• Use the numbers to pay your quarterly estimated taxes online
• Export data to TurboTax at year-end for faster filing
• Get a completely Free Trial for Freshbooks Self Employed

I hope that this helps you with income tax on self employed earnings.

Lastly, to get a free tax consultation with a tax expert today click here.