Anyone who has ever dealt with self-employment taxes will tell you that the process can be both complicated and stressful- especially if it’s something they’ve tried to handle on their own.
Simply stated, self-employment tax that’s imposed on self-proprietors, freelancers, and small business owners to fund Social Security and Medicare. Anyone who has more than $400 per year in self-employment income must pay self-employment tax.
In 2019 and 2020, the Social Security tax rate is 12.4% and the Medicare tax rate is 2.9%. If this is your first time needing to pay self-employment tax, those rates may seem a bit high, but there’s a reason for that.
When an individual is “employed” by a company and they receive a regular paycheck (where taxes are taken out) their Social Security and Medicare taxes are split between the employee and their employer, ie: they each pay 6.2% toward the employee’s Social Security tax, and 1.49% toward the Medicare tax.
Consequently, an individual’s total self-employment tax rate is 12.4% + 2.9%, for a total tax rate of 15.3%.
How Tax Return Services Can Help
When you hire an accountant, your tax professional can help you understand the types of deductions you can take that can lessen your tax burden. For example, you may be eligible to take a home office deduction.
The home office deduction is a complex deduction that’s used to calculate your home office expenses. Examples of eligible expenses include rent, mortgage interest, property taxes, home depreciation, homeowner’s insurance, utilities, home maintenance, and others. For example, if your home office occupies 10% of your home, then 10% of your annual electricity bill may be tax deductible.
You may also be able to deduct Internet expenses, business phone expenses, and your health insurance premiums. In some instances, meals and travel expenses can also be deducted. Self-employed people can also deduct vehicle and mileage expenses.
Why it’s best to hire an accounting firm
When you itemize your self-employment tax deductions on a form Schedule C, this needs to be done correctly. If you decide to file your return on your own, and you accidentally make a mistake, you run the risk of having your return flagged for an audit.
On the other hand, when you work with a tax professional, you’ll have the benefit of working with someone who knows the ins and outs of the most current tax laws. Not only will they be able to answer your questions about the types of expenses you can take, they’ll make sure your return is prepared and filed correctly. For more information about the benefits of hiring an accountant to help you with self-employment tax deductions, call our office today to learn more.