Being Self-Employed & Tax
Running an independent business is a great satisfaction for any person, because the individual is in control and have no “boss” to answer to (well maybe answerable to client/customers), but has the freedom to choose whom to deal with. But of course, with such freedom comes great responsibilities, one of which is certain tax responsibilities.
One great tax responsibilities that an independent business owner, as a sole-proprietorship, has is the self-employment tax. What the self-employment tax is, the actual “two sides” of the Social Security tax and the Medicare tax. Every employer is the US subject to a 6.2% Social Security tax on an employee’s wages, up to a maximum of $117,000 wages for each employee for 2014 (the maximum is $118,500 for 2015), as well as subject to a 1.45% Medicare tax, with no maximum limitations. While at the same time an employee himself/herself is also subject to the same 6.2% tax rate for Social Security, and the same 1.45% Medicare tax rate, which is usually (or supposed to be) withheld by the employer. However, for the self-employed sole-proprietor, he/she is considered to both an “employer” and an “employee” for Social Security and Medicare taxes. Thusly, the self-employed sole-proprietor would pay a combined Social Security tax rate of 12.4% (6.2% + 6.2%, up to $117,000 for 2014, $118,500 for 2015), and a combined Medicare tax rate of 2.9% (1.45% +1.45%). So the self-employed tax rate for the sole- proprietor rate is 15.3% (12.4% + 2.9%), it is really a very hefty tax for any an independent self-employed business owner to be responsible for.
So, if you are planning to be go into business for yourself (or you are already in business for yourself), please contact us, so we can go over more detail of this self-employment tax, and how to help you to work around this self-employment tax.