Federal taxes as a self employed individual and for a business operate differently then other employment arrangements. You will pay your typical percentage of tax withholding plus an additional self employment tax. Self employment tax is currently about 15%. The rate consists of two parts: 12% for social security (old-age, survivors, and disability insurance) and 3% for Medicare (hospital insurance). Essentially self employment tax is the amount a company pays on your behalf when you work for them. Since you are now self employed, you are responsible for both chunks of the payment. Depending on how you established your practice as a legal entity alters how the business is taxed. Remember that the legislators of the country reform tax law often and your tax liability may change with new laws.
- Consider having an CPA in your community complete your taxes rather than an online service. This can maximize your deductions.
- Keep accurate logs and books throughout the year for income and expenses in the business.
- Weigh the pros and cons of how you employee more staff considering tax liability as well (1099 vs W2).
- Set aside a pre set percentage possibly as high as 40% to pay your federal taxes at the end of the year.