Self Employment Income: Fill & Download for Free

According to The IRS, Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves.The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).While the Tax Amounts might vary with difference in Self-employment, the need for minimizing income tax is constant across the entire self-employed strata.Here are some ways by which you can do the same:A. Increase your Business Expenses: The only sure shot way to minimize your self-employment tax is to increase your business related expenses. Regular deductions like the standard deduction or itemized deductions won't reduce your self-employment tax though.B. Forming an S-Corporation: The self-employment tax applies specifically to earned income. If your clients or customers pay the S-corp and not you directly, that's not earned income to you. But you need to pay your bills, right? You need earned income.So break up those payments and pay yourself a part of them as salary and the balance as dividends. The "salary" portion is earned income and is therefore subject to self-employment tax, but dividends aren’t!C. Health Insurance Deductions: One substantial tax advantage, the self-employed have, is the ability to deduct health insurance costs. As About.com explains, you can “deduct the full cost of health insurance you purchase for yourself, your spouse, and/or your dependents” so long as you had a net profit for the year.D. Defer Income: Another creative but perfectly legal way to reduce your self-employment taxes is to defer income. As a self-employed person, you can choose whether to get paid now or later. This works by deferring a part of your income to next financial year which is putting your net taxable income in a higher tax bracket. This way you can earn your due while staying in a lower tax bracket at the same time.So, these are some ways by which a freelancer can minimize taxes in Financial Year 2020. Meanwhile, if you are looking ahead to a Tax Hosting Provider, which takes care of most of your financial woes and ensures all your tax returns stay manageable and up-to-date, find us HERE.

The biggest difference tax wise between self employment and working as an employee is self-employment tax, income tax rates are the same for the same taxable income.When you are an employee you pay 7.65% FICA and Medicare tax and your employer pays a matching amount for a total 15.3% combined FICA/Medicare tax.As a self-employed individual you are both employee and employer so you pay both parts of the FICA/Medicare tax for a total combined self employment tax rate of 15.3%. The one break you get is that as an employee you pay tax based on your gross pay, but as a self employed individual you pay based on your net profit, so business expenses will reduce both your taxable income and your self employment tax, whereas it is pretty difficult for most employees to get a tax deduction for un-reimbursed expenses due to limits on itemized deductions and even if you do realize a deduction, it does not reduce your FICA/Med tax paid on wages.

Line 6 is for any W2 wages you receive which are subject to income tax when you file your 1040, but already have social security and medicare taxes and potentially federal and state withholding taken out. Self employment income is subject to self employment tax plus income tax and thus the worksheet makes a distinction between what you earned as a self employed person (line 1) vs what you earn as an employee (line 6), because the nature of your employment earnings will impact how much estimated tax you should be paying in.