Mark Glendon

Do Self-Employed Individuals Get Taxed Differently?

Being self-employed comes with many perks. You work on your terms, control your earnings and don't have to answer to micromanagers or hovering bosses! With several gig work platforms making self-employed living more accessible than ever, millions are ditching their nine-to-fives for a little more freedom. Optimize your finances: navigate expert tax preparation for self-employed individuals. Visit now!

But there's just one hurdle you have to overcome: Taxes. Tax preparation for self-employed individuals is much different than if you work for a company. Whether you start a small business or do freelance work as an independent contractor, you get taxed differently. Here's what you need to know.

The Basics of Tax Preparation for Self-Employed Individuals

Like anyone else, self-employed people have to file an annual return. But unlike people who work for a company, being self-employed means paying quarterly taxes. Think of it as a pay-as-you-earn model. The IRS expects self-employed people to pay estimated taxes every quarter, and failing to do so will result in underpayment penalties and interest.

Another thing you must consider is the self-employment tax. Self-employment tax applies on top of income tax. It covers Social Security and Medicare.

While it might seem unfair that you pay self-employment and income taxes, you must look at yourself as both the employer and the employee. When you work for a company, your employer pays FICA. It's a payroll tax that largely funds Social Security, Medicare, disability and other programs. Both you and your employer pay FICA taxes. Your employer pays half, and you pay the other through deductions from your paycheck.

Unfortunately, self-employed people don't have that luxury. Therefore, they must pay the employer and employee's share through self-employment tax.

The good news is that self-employed people have access to more deductions. There are more complexities involved based on your business structure. For example, you may be a sole proprietor if you do freelance or gig work. Alternatively, you could be part of a partnership or corporation. Whatever the case, there are ways to reduce your taxable income and decrease that self-employment tax burden. Many self-employed people take full advantage of home office deductions and other ongoing expenses.

Author Resource:-

Mark writes often about tax and estate planning. His articles may include topics like tax planning, estate planning, business accounting or any other tax service to help the people in needs. You can find his thoughts at tax preparation blog.