Running a business from your home provides opportunities you will never have if you work for a company. Self-employment allows you to work when you want to, and it lets you work as much or as little as you want. The downside to self-employment is the tax liabilities you may have. Planning for your business tax is essential if you want to avoid problems and large tax bills at tax time. Therefore, here are three things you should know about your taxes if you are self-employed.
Your Business Entity Affects Your Taxes
Most people who run home-based businesses operate their businesses as sole proprietorships. A sole proprietorship is a business that one person owns. When you operate with this business structure, you pay your taxes through your personal tax returns. In other words, your business does not have to file its own tax return. You file just one return, which includes your personal income as well as your income from your business.
You Incur Tax Liabilities from All Your Income
The downside of earning money is that you must pay part of it for taxes. Self-employed individuals pay the same taxes as people who work for companies, but they also pay extra taxes. You will incur federal, state, and local income taxes from the income you earn through your business. You will also have to pay other payroll taxes, such as Medicare and Social security. Determining how much you have to pay is often the hard part, so you should hire a company that offers tax services.
Paying Quarterly Taxes Is the Best Option
Many self-employed individuals are required to pay quarterly taxes to the government. You should consider paying your taxes quarterly, too, even if you are not required to pay them quarterly.
A tax service company can help you set up your quarterly payment structure, and they can also help you determine how much you must pay each quarter. You may have to make separate payments for federal taxes and state and local taxes, or you may have to pay just one of these.
Paying quarterly is smart because it allows you to pay your taxes as you go. Paying this way helps you avoid large tax bills when tax time comes.
If you operate a self-employed business and need help with your taxes, contact a company that offers tax services in your area. They can help you learn more about managing your tax liabilities.