Taxes for Self-Employed Individuals: What You Need to Know

Starting your journey as a self-employed individual or entrepreneur is an exciting step toward financial independence. However, it also comes with important financial responsibilities - especially when it comes to taxes. Unlike traditional employees who have taxes automatically deducted from their paychecks, self-employed individuals must manage their own tax obligations. 

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I know... more work. Taxes may not be the most exciting part of being your own boss, but staying on top of them can save you money, stress, and potential penalties. The good news? With the right knowledge and tools, you can confidently handle self-employment taxes and even take advantage of deductions to lower your taxable income.

what is self-employment tax? 

To make sure we’re all on the same page, self-employment tax refers to the Social Security and Medicare taxes that self-employed individuals must pay. When you're employed by a company, your employer pays half of these taxes, and the other half is taken out of your paycheck. But when you're self-employed, you're responsible for paying the full amount yourself—which is currently 15.3% of your net earnings.

This tax helps fund important programs like retirement benefits, disability insurance, and Medicare health insurance. So while it might sting to pay more upfront, you're investing in your future.

To make the process less overwhelming, here’s what you need to know to stay on top of your taxes, maximize deductions, and avoid unexpected surprises.

here's a quick look at what we'll cover 

what taxes do self-employed individuals have to pay?

Self-employed individuals are responsible for two main types of taxes:

• Self-Employment Tax (SE Tax): Covers Social Security and Medicare taxes. The current rate is 15.3% of your net earnings.
• Income Tax: The amount you owe depends on your total income and tax bracket.

how do i calculate my self-employment taxes?

To calculate your taxes:

• Determine your net earnings (total income minus business expenses).
• Multiply your net earnings by 92.35% - this is the portion subject to self-employment tax.
• Apply the 15.3% self-employment tax rate.
• Factor in your federal and state income taxes based on tax brackets

Consider using tax software like TurboTax, TaxAct, or H&R Block to automatically calculate your estimated self-employment tax.

Psst... If you're looking for a sweet Tax Software discount, check out Skyla's partnership with TurboTax and H&R Block!

how do i pay my self-employment taxes?

Since self-employed individuals don’t have taxes automatically withheld, the IRS requires you to make quarterly estimated tax payments. These are due:

• April 15
• June 15
• September 15
• January 15 (of the following year)

Payments can be made through the IRS website using the Electronic Federal Tax Payment System (EFTPS).

what deductions can i take as a self-employed person?

One of the perks of being self-employed is being able to deduct business-related expenses, including:

• Home office deduction (if you have a dedicated workspace)
• Internet and phone bills (if used for business)
• Equipment and supplies (computers, software, office furniture)
• Travel and mileage (for work-related trips)
• Health insurance premiums (if you pay for your own coverage)

If you work from home, use the simplified home office deduction method: Simply deduct $5 per square foot, up to 300 square feet.

what records should i keep for tax purposes?

Keeping detailed records will make tax season easier and help you back up deductions if you’re ever audited. You should track:

• Income (invoices, payment receipts)
• Expenses (business-related purchases, categorized receipts)
• Mileage (if using your vehicle for work)
• Bank statements (to verify transactions)
• Tax documents (1099-NEC forms, previous tax returns))

Using accounting software like QuickBooks, FreshBooks, or Wave can help you stay organized.

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Psst... Keep all receipts for at least three years in case of an audit. Going digital? You can use apps like Expensify or Everlance to track expenses and mileage on the go.

do i need an accountant or tax professional?

This decision is entirely up to you, but here's something to consider: working with a tax professional can make a big difference, especially if your finances are complex. Whether you have multiple income streams, numerous deductions, or simply want reassurance that you're doing everything right, a pro can guide you through it all.

Not only can an accountant help you find opportunities to save on taxes, but they also ensure you're staying compliant with IRS rules and filing correctly. Most importantly, they bring peace of mind—so you can focus on running your business, not stressing over spreadsheets.

what's next?

Did you get all of that? I know - navigating self-employment taxes may seem overwhelming at first, but with proper planning and organization, you can stay ahead.  To help, make sure you:

• Set aside money for taxes - don’t get caught off guard.
• Track expenses and income regularly - it makes tax filing easier.
• Stay informed on tax law changes - new deductions could save you money.
• Consult a tax professional if needed - it’s an investment in your financial future
  

Are you a Skyla member?

Did you know that all members get discounts with TurboTax and H&R Block? Check it out!