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By 2020, the number of self-employed Americans is expected to triple to 42 million people. It's easy to see why, with 97% of these workers saying they have no desire to return to a traditional job.

Whether or not you're newly self-employed, your tax is going to be a little different. To stay on Uncle Sams good side, use this self employment tax calculator to get an idea of how much you'll owe for taxes.

Got questions? Below is a detailed guide of how much tax to pay and how to go about paying your taxes.


Why use a self employment tax calculator?

Tax can be complicated. This is especially true for people who are self-employed. And if you're new to self-employment, the last thing you need to do is end up owing the IRS a chunk of change.

That's why it's a good idea to use a self employment tax calculator. These calculators let you know exactly which numbers you need to put in each box.

They then do the calculation for you, so if math isn't your strong suit, you can be sure that you're getting the right result.

How much are self employment taxes in 2018?

For regular employees working under a W2, taxes are withheld from your paycheck. When you're self-employed, you'll need to pay your federal income tax, social security tax, and Medicare tax yourself.

Self-employment tax is 15.3%, which includes Medicare and Social Security taxes. This also includes what an employer would contribute, since people who are self-employed have to pay both.

For your income tax, you'll need to use the estimated taxes system. This means that you'll estimate how much you expect to earn so you can pay taxes on this estimate each quarter.

Do I pay more taxes being self-employed?

It may feel like you're paying more taxes when you're paying your taxes yourself.

When you receive your salary as a W2 employee, all tax deductions have already been taken. But when you're self-employed, you have to budget accordingly and actually hand over this money to the IRS.

When you're self-employed, you're also paying the employer's contribution. If you were unprepared for this, it may be a good idea to re-consider your rates.

Business Deductions

It's also important to recognize that the tax you pay on a salary from an employer is "gross." When you're self-employed you'll deduct a number of business expenses to come up to your net earnings, and then pay tax on that net amount.

These include transportation, home office costs, office supplies, and even health insurance premiums.

What types of deductions can I make?

Many people who are self-employed are unaware of some of the deductions they could be making. Here are just a few of the items and expenses you can deduct:

  • Automobile expenses: If you travel for work i.e. to deliver products or meet clients
  • Training expenses: If you take a business course or buy books directly related to your work
  • Retirement plans: Individual retirement plans can be deducted
  • Business use of home: If you have a home office used solely for work, plus the internet, telephone lines, etc.
  • Office Supplies: folders, staples, pens, papers, etc
  • Marketing and advertising: web hosting, Facebook ads, promotional videos, business cards, etc.
  • Entertainment and meals: If you take a client to dinner or lunch you can deduct 50%. Keep a record of what was discussed and save the receipt.
  • Equipment: printers, laptops, cell phones, etc., can be deducted over time
  • Maintenance and repairs: repairing business equipment or electronics

Of course, these need to be legitimate deductions--otherwise, if you're ever audited you could be in big trouble And remember, when it comes to deductions you typically have two choices – take the standard deduction stated by the IRS, or itemize your actual deductions. It often makes sense to pick the amount that is higher.

If in doubt about a deduction, be sure to speak to an expert or get in touch with the IRS.

How do I calculate my self-employment taxes?

To calculate your self-employment taxes, you first have to calculate your income. This means getting serious about your records and keeping track of how much you're earning.

You'll also need to keep track of all of your expenses--and proof of these expenses in case you're ever audited.

When it's tax time, you'll use the Schedule C form to report your business expenses and income. Then you'll simply take your income, subtract your expenses, and you'll have your net profit.

The net profit is what's taxed, and you'll pay 15.3% of this as your self-employment tax. You'll also need to make estimated income tax payments four times a year, based on how much you're earning and your tax rate.

What percent of my income should I save for taxes?

Your taxes include both self employment tax and income tax. Self employment tax is 15.3%, and your income tax will vary depending on how much you earn. Here are the current self employment income tax rates for single filers:

  • Up to $9,525 = 10%
  • $9,526- $38,700 = 12%
  • $38,701- $82,500 = 22%
  • $82,501- $157,500 = 24%
  • $157,501 to $200,000 = 32%
  • $200,001 to $500,000 = 35%
  • $500,000 or more = 37%

Keep in mind that this is a progressive tax rate. So as your income rises, you won't pay higher tax on all of your income. If you earn $58,000 for example, you'll pay 12% on all income up to $38,700 and then 22% for the remaining $19,300.

But you'll also need to pay your self employment tax on top of this. This is why it's a good idea to save 25-30% of your income for taxes.

If you pay too much tax, you'll get a nice refund at tax time. If you don't pay enough, you'll need to scramble to pay your bill, and can also get fined for underestimating your tax burden.

Final words?

Self-employment has many benefits. You can set your own hours, work from your couch, and pick and choose your clients. However, paying self-employment tax can be tricky.

If you need to work out how much you'll owe for taxes, be sure to use a self employment tax calculator to make it easier.

Need to do some more tax calculations? Check out our other tax calculators today.

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