My Taxation

For the Fiscally Challenged

By Ernest Johnson

Even as your enthusiasm about finally making some money in your home based business is beginning to build, in the back of your mind the nagging worry about the tax ramifications that your sudden income will generate cannot be denied. Sure, you probably read up on tax liabilities, but more than likely with an eye to tax deductions rather than self-employment tax.

Self-employment tax rules for the fiscally challenged are by no means all-inclusive, but they do provide a good rule of thumb that helps you understand how much of a hit you can expect Uncle Sam to take. When you are in business for yourself this is very important information to have and understand.

Many a myth has sprung up around self-employment taxes, but in essence they are little more than your paying into the social security and also Medicare funds. In the past, you saw these deductions on your paychecks.

At this point in time, your self-employment tax rate – regardless of income below $94,200 – is set at 15.3%.

A much-overlooked rule dictates that you are supposed to pay your estimated self-employment tax throughout the year. This is true especially when you find at the end of the last year that you owed taxes – of any kind – exceeding $999. Estimated tax payments may be made during the year and thus will ease the hit you may take at the end of the year.

Interestingly, if you just started out with your home base business, you might be able to get away with not paying self-employment tax, if your net income was at or below $399. At this point it is still considered hobby income and will not be subject to the tax.