Self Employment Tax in Poway, California
In Poway, California, there are particular taxes that are placed on employees, which are deducted from their paychecks. The generally well-known employment taxes are the Medicare and Social Security tax, for which a small percentage of every employee's paycheck is deducted.
It's extremely important to know that, if you are self-employed, you still have to pay those taxes, and it's also up to you to figure out clearly how much you owe, to ensure that you don't pay more or less than you are obligated to.
Normally, it's the employer who makes all these calculations, and the employee doesn't have to think about it. Most larger employers have payroll departments to take these matters, making it pretty simple for them. But, if you are self-employed, it's up to you to accurately determine what you have to pay in self-employment taxes
Self-Employment tax obligations in Poway, California
If you are an independent contractor, or run a sole proprietorship (a company which you own, and which is not incorporated as a separate legal entity), you must pay the so-called "self-employment tax" if your income from self-employment is larger than $400 per year.
For normal employees, Social Security and Medicare payments are made in equal parts by the employee and employer. This basically means that every employee's contribution to his or her future Medicare and Social Security benefits is matched by the employer.
However, the self-employed in Poway, California are responsible for making the employer AND employee contributions to those programs, basically doubling what they would have to pay if they were employed by someone else.
Self-employed workers in Poway, California pay a self-employment tax rate of 15.3% of their income that's derived from self-employment. However, half of whatever they end up paying in self-employment tax is deductible from income tax. This basically creates a tax deduction of nearly 8% of one's income, requiring you to only pay taxes on 92% of what you earn. Additional tax deductions may lower that number further. When this deduction is taken into account, the self-employment tax rate is effectively 14%, as opposed to over 15%.
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Can a Poway, California Tax Attorney Help?
If you are self-employed in Poway, it's necessary that you keep good records of your income and expenses, because a tax attorney will only be able to assist you to the extent that you help yourself.
Anyone having difficulty with figuring out what they owe in self-employment taxes in Poway, California should seek the help of a brilliant tax attorney. Most tax attorneys also have a good understanding of accounting, so making this determination probably won't be too hard for them. And on top of that, a qualified tax attorney can give you objective and useful legal advice, which can help prevent more severe issues from forming in the future.