Self Employment Tax in Atascadero, California
In Atascadero, California, there are certain taxes that are enforced on employees, which are deducted from their paychecks. The mostly 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 critical to note that if you are self-employed, you're still liable 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 usually very simple, and any decent payroll software can automate this process. But the self-employed are responsible for figuring this out for themselves, or hiring an accountant to do it.
Self-Employment tax obligations in Atascadero, California
If you mainly work as an independent contractor, or are the owner of a sole proprietorship, you have to pay what's usually referred to as the "self-employment tax," if your annual income from self-employment is over $400.
Workers who are employed by someone else enjoy at least one perk that the self-employed do not: their employer matches their Social Security and Medicare contributions, effectively doubling the amount of money that's contributed to these funds on the employee's behalf.
However, self-employed workers in Atascadero, California must make both the employee and employer contributions. So, this means that the Medicare and Social Security tax liabilities apply doubly to the self-employed.
Self-employed workers in Atascadero, California pay a self-employment tax rate of 15.3% of their income that's derived from self-employment. But, half of whatever they end up paying in self-employment tax is deductible from income tax. This effectively creates a tax deduction of nearly 8% of one's income, requiring you to only pay taxes on 92% of what you earn. Further 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 Atascadero, California Tax Attorney Help?
If you are self-employed in Atascadero, it's extremely important for you to be diligent in keeping records of your income and expenses, to ensure that you pay all the self-employment taxes that you owe (and also to make sure you don't over-pay). You may one day need a tax attorney to help you with a legal issue, and they can help you far more efficiently if you are able to quickly present them with all the relevant information.
Anyone having difficulty with figuring out what they owe in self-employment taxes in Atascadero, California should seek the advice of a reputable tax attorney. Most tax attorneys also have a good knowledge of accounting, so making this determination probably won't be too hard for them. And on top of that, a competent tax attorney can give you objective and useful legal advice, which can help prevent more significant issues from arising in the future.