Self-Employment Income Taxes: The Basics

It’s time to file taxes: everyone’s favorite time of year! Taxes are collected by the government each year in order to pay for public services and goods. You may have heard of the Internal Revenue Service, also known as the IRS, which is the nation’s tax collection agency. For many individuals, their taxes are paid through withholding, meaning that the money is taken out of each paycheck. For other individuals, specifically the self-employed, this is not the case.

You are considered self-employed if you meet any of these requirements. If so,  it will be necessary for you to file self-employment income taxes.

·        You own or operate a trade or business as an independent contractor or sole proprietor

·        You are a partner or member in a partnership that runs a business or trade

·        You are in business for yourself (this includes part-time business)

·        You file a business tax return through Schedule K-1

Self-employed individuals are required to pay an income tax as well as a Social Security and Medicare tax. The Social Security and Medicare taxes are similar to those withheld from the paycheck of normal wage earners. You might be asking: exactly what is the self-employment tax rate? It is currently 15.3% on net earnings, but a limit is set as to how much can be paid into the Social Security portion each year.

To know if you have to pay self-employment tax and income tax, you have to calculate your net earnings and net loss. This step is simple: subtract your business expenses from your business income. If your answer is positive, congrats, you made a profit. If your answer is negative, you lost money. If your overall earnings were over $400, you are required to submit an income tax return form. Even if your net earnings were less than $400, you have to submit the form if you meet any of the requirements in the Form 1040 instructions.

The IRS will require you to submit quarterly estimated taxes if you plan to owe more than $1,000 in taxes when you file the return. These taxes are submitted April 15, July 15, September 15, and January 15, or each quarter. If you do not file these taxes, the IRS can fine or penalize you for underpayment. To submit these taxes, you will fill out Form 1040-ES, which will assist you in figuring out if you have to pay estimated taxes and also calculating the amount you owe for estimated taxes. You will need your annual tax return from the previous year to fill out Form 1040-ES. Though the IRS does not require this form to be turned in, it is recommended that you keep it on record. Form 1040-ES contains vouchers that can be completed when you send in your quarterly payments or you can submit the payments online using the Electronic Federal Tax Payment System (EFTPS).

The type of business that you own will also play a factor in determining which form you need to complete. Sole proprietorship, partnership, corporation, and S corporation are the most common forms of businesses. A Limited Liability Company is also a business structure that has recently been allowed. Each type of business requires its own specific forms to be submitted, so be sure that you are aware of this.

These are only the basics of filing for self-employment income taxes. If you are new to self-employment, it may be helpful to meet with a professional to find out more information on paying taxes. A professional will also make sure you are completing the correct forms and filing at the necessary times. Veitengruber Law can direct you to a trustworthy and experienced tax professional – we’re happy to connect you! Don’t let the details scare you away, being self-employed can be a great opportunity to explore a passion and make a difference in the community around you.


Saving for Retirement When You’re Self-Employed

Being self-employed has its fair share of benefits, but requires extra attention to financial planning for the future, especially retirement. According to the Bureau of Labor Statistics in 2015, there were 15 million Americans that were self-employed. Self-employed individuals have to provide their own healthcare and benefits and save for their retirement. These tasks can be difficult when individuals cannot necessarily count on a steady paycheck and a regular income. You may not feel ready to start saving thousands per year, but when that time comes, a retirement plan will be extremely useful. The Internal Revenue Service (IRS) offers various plans with unique advantages for those who are self-employed.

  1. Simplified Employee Pension IRA

Contributing money to this account will allow it to grow tax-free until retirement. You are able to invest up to 25% of your net earnings up to a maximum, which ended up being $53,000 (in 2016). This type of plan is easy to set up at a bank, mutual fund company, or brokerage firm, and some banks allow you to open one online. This kind of account is simple, easy to establish, and increases flexibility because it lets you decide how much you want to contribute throughout or at the end of the year. If you do have employees working for you, you are required to invest the same amount of money into their accounts as you do into yours.


This savings incentive match plan for self-employed individuals and their employees allows individuals to put 100% of their net earnings into the account, up to $12,500 (in 2016). Individuals older than 50 can contribute $3,000 more each year for “catch-up” deposits. Employers are also required to pay a 2 to 3% company contribution to this account for employees, which could potentially allow you to add more than $12,500 per year. The money that you add is tax-deductible and remains tax-free until you begin drawing money out of the account. It is typically used by small businesses with employees, the self-employed, and solo entrepreneurs. Unfortunately with this type of account, contribution limits are lower.

  1. Solo 401(k)

This type of plan is a good choice for individuals with a large income and is typically used by sole proprietors and businesses owned by couples because it allows for larger contributions. It is possible to add up to $18,000 per year (in 2017), in addition to $6,000 for those age 50 and older. Adding to these amounts, you can contribute an additional 25% of your self-employment net earnings, for up to a total of $54,000 (in 2017). The negative side of a solo 401(k) is that it requires more paperwork than a Simplified Employee Plan (SEP) IRA. If there are employees other than your spouse that work for the business, it is no longer a “solo 401(k).” A normal 401(k) plan is not exempt from discrimination testing.

It is always in your best interest as an entrepreneur and business owner to do research on your current and future income and be knowledgeable about the direction of your business. If you need more information than is available here, Veitengruber Law can put you in touch with a professional financial adviser in our trusted network.

Better Networking Strategies for the Modern Small Business Owner

Every small business owner recognizes the importance of networking. You can’t be an entrepreneur today and not hear or read the buzzword “networking” at least several times a day.

However, this doesn’t mean that every small business owner is equally adept at reaching out and working the circuit. If you need help or ideas when it comes to your personal networking plan, you’re not alone. Networking can be one of the more challenging aspects of owning a business because it involves stepping out of your comfort zone.

Difficulty level aside, reaching out to other entrepreneurs is a crucial part of how successful your small business can be. It’s a great way to generate leads which can increase your customer base, and it can also help you to learn and grow as a person and business owner.

Give the following networking tips a try – you might be better at networking than you thought!

Focus on forming relationships

Instead of going into the networking process with the mindset of striking a deal at every turn, commit to the concept of forming friendships with other like-minded entrepreneurs.

The traditional approach to networking through formal meetings and conferences can still be effective ways to hook up with other business owners, but you should also constantly be thinking about making authentic contacts as you move through your workday. You never know who may end up being your next great connection.

Knock the pitch out of the park

No matter where you do most of your networking, you have to make an incredible first impression. With only seconds to impress upon someone why they should want to continue connecting with you in the future, have an elevator pitch prepared and ready to go at a moment’s notice. Naturally, work on honing your go to introduction so that it sounds less like a pitch and more like a good reason to get to know you better.

Be honest about your intentions

Even as you work to change your mindset towards building relationships that last, leading with honesty is always the best policy. If you’re looking to expand your company‘s reach into a new geographic area, a good tactic can be reaching out to friends of a friend. Reveal your motives as you give your elevator pitch and then quickly transition into committing to the “slow burn” of long-term relationship-building.

Use social media

Small Business Trends Magazine reports that, as of November 2016, 97% of adults who use the Internet either utilize or visit a social networking site regularly. The most popular social networking sites include: Twitter, Instagram, Pinterest, LinkedIn and Facebook.

Cyber-networking has actually proven to be quite successful and prosperous for many modern small business owners. Connect online with local entrepreneurs in your industry as well as those who may complement your business. Often, online connections can prove to be as fortuitous in business as they are in romantic comedies.

Leave an impression (and your contact info)

As you work to grow your networking circle, remember to always have plenty of business cards on hand. Even if you make a lasting impression, it will mean little if your new connections don’t know how to contact you. Many business owners today still favor traditional business cards, while others have transitioned to the digital business card. It’s a good idea to be familiar with how to create, share and exchange the more modern e-business card while still carrying paper business cards, so that you are prepared for the preferences of anybody you meet.


Image: “Cheers” by Jakob Montrasio – licensed under CC by 2.0