Self-employed individuals are responsible for paying into the Social Security system through taxes. Employees at traditional workplaces have 6.2% of their gross income (up to $142,800) taxed for Social Security, plus an additional 1.45% taxed for Medicare. However, self-employed individuals must pay the full 15.3% of their gross income to cover the tax contribution to Social Security and Medicare. If they earn $400 or less annually from their business ventures, they are exempt from these taxes. The IRS provides deductions to the self-employed, as they only owe taxes on their net earnings, which is their gross income minus business expenses. 1. Self-employed individuals only have to pay Social Security and Medicare taxes on 92.35% of their net earnings.
2. They can consider half of the Social Security tax as a business expense, which can lower their adjusted gross income and reduce their income tax burden.
3. Self-employed individuals need to use additional forms to file their taxes correctly, unlike traditionally employed workers who typically use the basic 1040 form.
4. Partnering with a tax professional can help self-employed individuals navigate tax issues and ensure they are filing correctly and taking advantage of available deductions.
https://www.firstcitizens.com/small-business/insights/taxes/self-employed-tax-tips
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