Presented by: Tammy S. J. Schneider, CPADirector of the Women in Business Practice at Glass Jacobson
Self employment taxes consist of Social Security and Medicare taxes primarily for individuals who work for themselves.The 2011 self employment rate is 13.3% and consists of two parts: 10.4% for Social Security and 2.9% for Medicare.
The most common options include:Sole Proprietorship, Partnership, Limited Liability Company, S Corporation and C Corporation.
If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if youexpect to owe tax of $1,000 or more when you file your return. Estimated tax payments are typically due quarterly on April 15, June 15, September 15 and January 15.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.Generally, you cannot deduct personal expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the two and deduct the business part.
If you use part of your home regularly and exclusively forbusiness, you may be able to deduct expenses for the business useof your home. These expenses may include mortgage interest or rent, insurance, utilities, repairs, etc. You do not have to be a home owner to take this deduction.
Register with the state for withholding and unemployment tax accounts. Have your employees complete the appropriate paperwork.Decide if you want to prepare the payroll and required reports yourself or hire a payroll service.
An information report required to be issued tounincorporated entities that you pay more than $600 in any year for services performed by people not categorized as your employee.
The official word from the IRS is:“You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the lawdoes not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.” What does that really mean?
Other Frequently Asked Questions: Do I need an EIN? What is a capital asset? What is depreciation? What is the difference between cash and accrual accounting? What is EFTPS? How long do I need to keep my tax information?
Tammy S. J. Schneider, CPA Glass Jacobson 410-356-1000 Ext 125Tammy.Schneider@GlassJacobson.com