Self Employment

[Lexluethar]

How do you figure self employment tax?

I know that what the corporate tax rates are, and i know what individual taxes rates are, I even know that for self employment tax is like 15.4% which includes social security and medicare.

What i don't know is how to compute the total of these, if they are included in the corporate tax rate or not. I'm debating on going into business full time and would like to know how much money I need to make per year to make the kind of money I want.

Right now i'm assuming around 100,000 income, which puts me at the 34% corporate tax bracket. So do I then add the 15.4% to that? Making almost a 50% tax percentage off of what i make?

I also realize that whatever income the LLC pays me will be taxed like normal too.

Any insite would be appreciated...

 

[DoubleHelix]

What did your accountant say when you filed taxes last year and listed expenses, deductions, etc.?

 

[Lexluethar]

Haven't filed yet for 2008. Last year was the first year of the LLC - so i'm trying to gage costs.

 

[Trotter]

I used to have a side business doing lawns. I got raped as far as self-employment taxes went. Maybe it was because it wasn't over a couple thousand or whatever, but it was 50% off the bat, but then I could take deductions. It hurt bad enough that I didn't start it back up the next summer.

 

[Hefemeister]

The self employment tax is in addition to your other taxes. It is around 15% and is to cover your social security tax. When you are employed you pay 7.5% and your employer pays the other 7.5%. Now the government allows you to write off 7.5% of the se tax. Make sure and keep track of all expenses to write them off. their tax value is 1-marginal tax rate.

I assume yo are being 1099'ed for the work you are performing?

 

[Lexluethar]

I haven't as of yet, but i've tracked all of my expenses and income for 2008 and what i've done in 2009. I have an accountant and i'm setting up an appointment with him next week to file for my 2008 taxes.

No one has claimed my billing as of yet, but i'm not worried about it as i'm filing a -insert form number that I have written down but don't remember name-.

Honestly I just knew what the corporate tax was, and i knew when I filed for the LLC my accountant said that the self employment for social security and medicare was 15.4%. What i didn't know is if that was in addition to the 34% corporate tax (or whatever bracket you fall into).

So Hef, i'm looking at a 50% reduction from taxes and what not... That really sucks I think what sucks more is that doesn't include insurance, so I have to include medical insurance in with this 50% reduction because of taxes.

On the plus side taxes are taken out on the balance sheet after employee salaries correct? So it won't hurt as much as i'm already getting paid... right?

I ask because currently I am unemployed and have been working on the side for my LLC jsut for some extra money, now i'm toying with the idea of actually going full time and need to know what type of income I need to make the type of money I want. So i've got it all written out, advertising, my salary, taxes, the % taken out for accepting credit cards, etc.

 

[superdave1984]

Get yourself a copy of Turbo Tax and let it do the calculations for you.

 

[Hefemeister]

Sorry I did not notice that it was an llc corporation. I have done taxes for a couple of years and am very good at personal taxes including schedule C which is for self employment.

I am not sure if you would file a corporate return which your taxes would be based upon your profit / loss and a personal return which would be based upon earnings. If you are being paid by the corporation then they would be responsible for the SS taxes and you would not have to pay SE tax on your personal return.

If you are doing your return by using a schedule C then you would have to pay SE tax but only based on net income. (gross income minus expenses)

I have had a schedule C company for many years now and it always "breaks even" so no SE tax.

 

[Lexluethar]

Yes, i believe a schedule C is what I will file. Sorry i'm too lazy to get my binder out that has all of my LLC information

But at this point i'm not too worried as the LLC has lost money up to this year because of all expenses (essentially I loan the LLC money to pay for certain expenses, legit expenses) so the LLC is still in the red.

I'm just trying to find out again how much I need to make, but Hef you are right it comes out at the very end after all expenses... so it won't be that difficult to make say 45k myself since taxes aren't taken out until after everything else. Otherwise there would be no way i could do it, b/c say off 100k of gross income if taxes were taken out early, then i would have 50k to work with for advertising, office supplies, gas, salaries, etc.

Whew... I was worried there for a second. But I will still go through an accountant this year, and i've kept dilligent reports and expense reports on all income and expenses. So i'm not worried about something not being considered a legit expense.

So it seems if i could make around 100k of raw business a year I could make this thing work...

 

[Hefemeister]

My suggestion for the next year is to look at a schedule C (yes that is a link to the US government). Look at the expense section for this is how you will do your deductions. Start a different folder for this year for each part where you will have deductions. That way at the end of the year you have all of your expense receipts already broken down by how they will go in the form.

Key things to remember.
Do you use your car to drive to jobs?
What tools do you purchase for your job?
Do you need special clothing that you cannot wear any place but your work?
Do you buy pens for your work?

There is a ton of stuff you can legitimately write off and the government does not expect to see a profit for the first 3 years.