Self Employment Tax in Colorado, Arizona
In Colorado, Arizona, 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 crucial 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.
In most cases, employers make all the necessary calculations to determine how much needs to be deducted from an employee's check to pay these taxes. It's normally very simple, and any decent payroll software can automate this process. But the self-employed are accountable for figuring this out for themselves, or hiring an accountant to do it.
Self-Employment tax obligations in Colorado, Arizona
If you own a sole-proprietorship, or work primarily as an independent contractor, you need to pay the "self-employment tax" if you derive any considerable amount of income from self-employment. You must pay these taxes if your income from self-employment is more than $400 annually.
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.
But, if you are a self-employed business owner in Colorado, Arizona, you are accountable for both the employee and employer contributions to Medicare and Social Security. This basically doubles your self-employment tax rate.
In Colorado, Arizona, self-employed business owners pay a self-employment tax rate of 15.3%. This is, of course, separate from, and additional to, whatever they pay in income tax. In an effort to partially offset this additional tax burden, half of what one pays in self-employment taxes can be deducted from their income when filing their income taxes. This means that the self employed pay income taxes on, at most, 92% of their income. And it's probably less, thanks to all the other deductions they might qualify for. This deduction lowers the effective self-employment tax rate to 14%, rather than the "official" rate of over 15%.
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Can a Colorado, Arizona Tax Attorney Help?
If you are self-employed in Colorado, 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.
Therefore, if you have some trouble figuring out what you owe in self-employment taxes, for whatever reason, chances are good that a reliable tax attorney in Colorado, Arizona can assist you with much trouble, and can provide you with good legal and financial advice, which can help you head off much more severe legal and financial issues.