Small Business Tax Guide for the Self-Employed

This small business tax guide is designed to help the self-employed prepare for tax season. When you become self-employed, the tax situation changes greatly. Here are the basics of self-employment taxes and what you need to do to prepare.

Self-Employment Tax

When you become self-employed, you will have to deal with the self-employment tax. This is a different tax rate than is levied upon you when you are an employee. With this type of tax, you will be paying the full amount for your Social Security tax. When you were an employee, your employer paid for half of this. Now that you are on your own, you will have to pay the whole thing. In addition to Social Security tax, the self-employment tax also contains a tax for Medicare. The tax rate for Social Security tax is 12.4%. The rate for Medicare is 2.9%. This makes the total rate for the self-employment tax of 15.3% of your income.

Although you will be paying a higher tax rate for Social Security tax, you will get to take a bigger deduction on your personal income taxes. The IRS allows you to deduct half of the self-employment tax that you pay on your personal income taxes. Therefore, even though the self-employment tax will be high, your personal taxes will be lower. This deduction often makes the self-employment tax much more bearable.

Keep Receipts

When you are self-employed, you want to make sure that you keep receipts for everything that could be considered a business expense. Any supplies that you buy for your office need to be kept track of. You need to keep track of your mileage as well as long as it pertains to business. As a self-employed person, you need every also will deduction that you can get. Therefore, you need to make sure that you hang onto all of your receipts so that you can accurately file your taxes.

Health Insurance Deduction

If you are self-employed, you will be able to take advantage of a health insurance deduction. As long as you are not eligible for a group medical plan, you can deduct the entire amount of the premiums that you pay for health insurance on your taxes. Therefore, this can be a nice deduction that helped subsidize the cost of medical care.

Health Savings Account

In addition to a health insurance deduction, you should also consider starting a health savings account. This allows you to contribute pretax money to a savings account and use it to pay medical expenses. The money that you can contribute will help lower your taxable income for the year.

Retirement Plans

Another good way to lower your taxable income is to invest in a retirement plan. A plan such as an IRA will allow you to contribute up to $5000 per year and it is all tax-deductible.

Charitable Contributions


You may also want to consider donating money to qualified charitable organizations. Every dollar that you donate will come directly off of your taxable income at the end of the year. This make sure that you keep a receipt or get some type of organized statement from the charity.