Paying the self employment tax is one of the burdens every independent contractor must face at least once a year. Depending on how much is earned for a single calendar year, this payout can become quite a hefty sum. What’s so bad about working at home? Having to pay for it, too. Find out how to make the burden a little more bearable…and find out just how big that burden really is.
How Much is the Self Employment Tax?
The amount of self employment taxes professionals must pay varies - it all depends on income. The formula, at least, is static. However, it can be somewhat confusing. To figure out the amount which must be paid on independent income, first figure up the net income for the year. This amount should be multiplied by 92.35% - and this is the professional’s net earnings.
Next, take the amount of net earnings and multiply the number by 15.3%. This is how much self employment tax the professional must pay - a burden that is paid in addition to, not instead of, income taxes (which everyone’s got to pay). Roughly speaking, professionals pay around $14 USD on every $100 that’s earned through work at home, freelancing and other related endeavors.
Using Tax Deductions
Fourteen bucks out of every hundred, especially when that payment comes in addition to regular income tax payments, is an astronomical amount. However, the tax doesn’t have to be such a huge burden. There are many different deductions which can make the payment amount much more tolerable. Even the self employment tax itself is deductible, and that’s only the first piece of good news.
- Insurance. Many work at home professionals and other types of independent contractors must pay out of pocket for their own health insurance, liability insurance and other job-related coverage. It’s all deductible, so apply it to taxes to enjoy a small break.
- Office space. Have a home office, rent out a building or use a car as a mobile business? All of it can become a tax deduction to lessen that yearly payment, so use it!
- Equipment. Purchased a new computer, reams of paper, plenty of envelopes in the line of duty? Anything purchased for work can subsequently be deducted, lessening the amount of self employment taxes which need to be paid.
- Bills. Professionals who work at home can even deduct some of their bills as expenses, making tax payments a little less. Those who work online, for instance, can claim some of this bill as a work-related payment, because it is!
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