Many people have 9 to 5 jobs with companies who withhold taxes for them. This means that taxes are taken out of their paychecks before they ever see it. If you are self-employed, however, there is no one taking out the taxes for you. Because of this, you are responsible for your actions and you are responsible for paying the IRS what the IRS is due. The last thing that you want to do is think that you can skate by the IRS. It will not happen. The government will get what is coming to it one way or the other. So, when you are earning your money on your own, you need to plan for taxes so that they don’t come back to haunt you on April 15th.

What Is Self-Employment Tax and How Does it Work?

Self-employment tax, according to Turbo Tax, is based on the business income reported on a Schedule C. The tax is about 15.3 percent of your reported net earnings. Then, the tax also considers Social Security and Medicare: 12.4 percent of Social Security and 2.9 percent for Medicare. According to Turbo Tax, one half of your income can be counted as a deduction on your taxes.

How Do You Calculate Self-Employment Tax?

The first thing that you should do, according to EHow, is to figure out your self-employment net income. Your business income is your business receipts minus your deductions. Then, you multiply the net income according to these calculations by 0.9235, says EHow. This is called your net earnings. If the number is less than $400, you do not need to pay self-employment tax. Then, you multiply earnings with a total of $76,200 or less by 0.153, and net earnings over $76,200 by 0.029. When these two numbers are added together, this equals your self-employment tax.

How to Work It All Out

One way that you can make taxes easier is to remember a few tips. Half of your self-employment tax is deductible. Also, if you are working in more than one business, you can file one Schedule SE. Though it may seem scary, taxes are parts of life. You may not want to pay them, but having a plan will make this process much easier to do.