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When you fill out your 1040 and Scheduel C, you will need to fill out a form for Self Employment Tax. You then get to right off part of the tax. Go figure!!
This is your SS tax and the amount you pay depends on how much you earn.
I wish I could promise (sign a form) that I would never ask the FEDERAL GOV. for a DARN thing if I could keep my contribution and invest it myself.
A word of caution. If you are currently working as a contractor and need to get your taxes straight, do it now!! Don't delay, it only gets worse. If you are thinking of becoming a contractor, hire yourself a good CPA to answer these type questions and get you started on the right foot.
*SSS give you "points" based on how much you earn in a year. When you do the self-employment tax form (SE), you're making up for what would have been your employer's matching contribution to SS, that's why it's deductible. You can get a statement of your current eligibility for benefits by just asking.Visit the SSA Web site at http://www.ssa.gov i checked there quickly just now and found the right document for you:http://www.ssa.gov/pubs/10022.html
*The benefits you receive when you start to collect Soc Security will be based on your lifetime earnings (social security paid in). When you work for an employer you pay 6.2% and your employer matches with 6.2% and gets a tax deduction for your wages and the social security he pays for you.When you work for yourself (self employed) you pay both sides of the social security. Since an employer would get to deduct half, you also get to deduct half (with a few modifications to make it come out right).When you go into business for yourself at tax time you may get "sticker shock". Remember Social security is figured on profit (income less expenses). It is a good idea to lower this figure as much as possible to reduce your tax burden. But remember if you don't report any income for years and years (I know you're out there), your social security benefits will be small or non existent.Sticker shock = You make $10,000 in your first year (bearly surviving) and your tax man tells you you owe $620 in social security taxes.Sticker shock = You make $30,000 and your tax man tells you you owe 15% income tax and 15% social security tax.Sticker shock = you make even more and your tax man tells you you owe 28% income tax and 15% social security tax.Suddenly swinging a hammer for someone else looks mighty good.But being self employed is like being married. You never know what it's like until you try it once.Marv
*Marv:Incorporate, incorporate, incorporate. Then be an employee of your own corporation. Helps you keep what you worked for.Andrew:Thanks for the post. It amazes me how many folks will ask questions on the street when all they have to do to get a CORRECT answer is look it up or call the people responsible.Guess it is a compliment on this forum's credibility though.
*Incorporating helps paying the taxes as you go. Both sides of the Soc Sec and medicare is still coming out of your pocket. I would also suggest Subchapter S status for those who want to incorporate.Marv
*Marv:Yeah you still pay; But one side is before tax dollars. That saves you money on taxes. As far as when you pay that depends on how you choose to pay the tax bill. Plus, many other normal expenses now go above the line saving tax dollars. End result is less money out of pocket and more you get to keep; which is the whole idea.
*As a self employed person, you should be making your quartly tax payments to the IRS. This includes FICA (Social Secrity) as well as Federal Witholding Tax.If you're not................START NOW!!!!Or pay through the nose later for years and years.You gotta stay on top of self employment taxes or they will eat you alive.Ed.
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