Self Employment Tax in Mountain Brook, Alabama
In Mountain Brook, Alabama, there are particular taxes that are levied 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 essential to note that if you are self-employed, you're still accountable for those taxes, and it's your responsibility to figure out what you owe.
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 Mountain Brook, Alabama
If you work as an independent contractor, or operate a sole proprietorship, you are deemed to be "self employed." You are required to pay the self-employment tax if your total income from self-employment exceeds $400 per year.
For people who are employed by another person or company, the employer normally matches the employee's contributions to Medicare and Social Security. This basically means that, when you look at your Medicare and Social Security tax statements on your paychecks, you can know that those programs are actually getting double what's shown there - with your employer covering the other half.
However, if you are a self-employed business owner in Mountain Brook, Alabama, you are accountable for both the employee and employer contributions to Medicare and Social Security. This essentially doubles your self-employment tax rate.
The total self-employment tax (note that this is totally distinct from the income tax) is set at 15.3%, if your income from self-employment in Mountain Brook, Alabama exceeds $400. But, half of this tax is deducted from your income, for income tax purposes. Therefore, this means that, at most, the self-employed only have to pay income on 92% of their total income, and that amount may be lowered with further deductions for which you may be eligible. This means that, basically, the self-employment tax rate is only 14%, as opposed to 15.3%
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Can a Mountain Brook, Alabama Tax Attorney Help?
If you work for yourself in Mountain Brook, you have to stay on top of your self-employment taxes, to avoid facing severe legal and financial issues later on. This means you need to keep superb records of all your income and expenses, in case you need to seek the advice of a tax attorney: the more information you can provide your lawyer, the better he or she can help you.
Anyone having difficulty with figuring out what they owe in self-employment taxes in Mountain Brook, Alabama should seek the help of a seasoned 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 egregious issues from forming in the future.