You Should Prepare For The Self Employed Tax

. Even if you don't have to worry about the 1099-K - and if you sell online you should probably at least be aware of it - if you're not working for someone else and drawing a wage, self employment taxes are a primary concern. Although it seems obvious for those already used to paying this tax every quarter, getting to that point requires active effort on the part of the business owner, so the basics bear reiterating.

Everyone has to pay taxes. Most people pay their income taxes up front, having them deducted from their regular paycheck by their employer, so tax season is a relatively happy time where if you file your paperwork the government gives you back some of your money. Those of us who have opted to be our own boss are in a different boat. We have to actively take steps to pay. Not only is it more work, but you have to pay more than a person drawing a wage or salary equivalent to your business' income, because we also have to cover the tax social security and medical components that employers typically pay.

This self employed tax is due roughly once a quarter. It's also known as an estimated quarterly tax payment because you estimate how much you owe based on income and expenses for that quarter. It's roughly 25%, and there are several calculators and small business bookkeeping tools - like Outright.com! - that help business owners figure out how much they should pay. If you miss the payment date, the government usually assess a fee. Come April, you have to pay any income tax not yet remitted to the government. If you've been keeping up with it this should be zero or even net you a small return. If not, it's bad news.

The safe thing to do is take 28% out of every week's income and set aside this buffer amount in a savings account to use to pay your taxes each quarter. It's easier said than done. You'll have this unfettered check for several thousand dollars, and putting a chunk of it away is quite difficult when you have personal and business expenses to pay, plus a birthday or holiday coming up.

But if you don't prepare, you'll have to wait until your next check to pay the taxes due. This means probably an entire check or more gone in an instant, forcing you to defer other bills and already putting you behind in preparing for the next quarter's due. By the end of the year, that $55,000 you made will cost you upwards of $14,000 in one fat check. Payable to the IRS and not avoidable.

It's a simple thing. But preparing for your quarterly estimated self employment tax payment by regularly setting aside a sufficient amount of income is something many small business owners and self-employed people fail to do and it costs them more than anybody wants to lose.

by: John V

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