Have a new sole proprietorship - no employees - self-employed.
This year I have been paying quarterly taxes... but I haven't been subtracting self-employment taxes. Do I need to do that with my quarterly, or just at the end of the year taxes?
Not sure what you mean by “subtracting self employment taxes” but they should be paid quarterly.
So when calculating the quarterly taxes i need to include self-employment? I have not for the first two quarters....
Yes. Self employment income is taxed at 15.3% plus your marginal tax rate.
So all I have been doing is paying quarterly on my estimated gross income ($159,600) minus the standard deduction ($14,600). which brings it to $145,000.
Based on the 2024 filing status for single, the tax is $17,168.10 + 24% of anything over $100,525
Which brings it to $27,968 for the year. Does that mean my quarterly taxes should be $6,992?
I have not considered self-employment taxes yet in these calculations...
Is that just the regular income tax on the $145,000? And it's not on Gross Income but on your Net Profit after expenses on Schedule C. You also have to pay Self Employment tax on it.
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.
You must make quarterly estimated tax payments for the current tax year if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- 2. You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
You have to add the self employment tax.
Generally, 92.35% of your net earnings from self-employment is subject to self-employment tax.
Once you’ve determined how much of your net earnings from self-employment are subject to tax, apply the 15.3% tax rate.
I've been going off of gross profit, not net profit....
Where do I pay self employment tax? All I have been doing is paying quarterly taxes based off of Gross profit minus the standard deduction, like mentioned before. So I should be doing everything based off of just net profit?
Sorry this is the first year of business and it's very confusing.
So you already sent in some estimated payments? Good. If you paid using the Gross Income then you probably have paid in enough to cover both the income tax and self employment tax, unless you don't have any expenses to subtract.
The Self Employment tax is included in the estimated payments and added on to your regular tax return. You don't need to pay them separately.
Yes, quarterly payments should include your income tax and the self-employment taxes. If you wait to pay income or self-employed taxes when your file the return, you may be subject to interest and penalties.
Be sure to make payments by due dates. If you do not make quarterly payments on time or payments are not enough to cover the net earnings for that quarter, you may still see interest calculated for paying that quarter late.
Here are a couple of resources about how to calculate the self-employment tax:
https://www.irs.gov/taxtopics/tc554
Thank you for joining us today!