Filling in the Gaps: Self-Employment Tax Information

Learning self-employment tax information is an essential part of the process of becoming self-employed. When you understand how self-employment taxes work, you can avoid some of the common problems that people face. Here are a few things to consider about self-employment taxes. 

Self-Employment Tax

Besides your regular income tax that you will pay, there is another tax that is due known as the self-employment tax. The self-employment tax is made up of two different parts. You will pay 12.4% towards Social Security and the 2.9% towards Medicare. Therefore, you will be responsible for another 15.3% in taxes on top of your Federal and state taxes.

Deduction

Although you are required to pay this extra tax, the good news is that you get to deduct half of this amount from your income taxes. This can provide you with a deduction that can lower your tax liability significantly.

Health Expenses

When you are self-employed, you can also deduct some health expenses. If you are not eligible for a group health insurance plan, you can deduct the cost of paying your insurance premiums. You could also start a health savings account, which will allow you to deduct the money that you contribute to the account.  

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