Self Employment Tax in Guadalupe, California
In Guadalupe, California, there are certain taxes that are imposed 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 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 exactly how much you owe, to ensure that you don't pay more or less than you are required to.
Usually, it's the employer who does all the calculations, determining what deductions need to be made from a worker's paycheck to cover his or her tax liability. But if you are your own boss, you have to do this, and ensure that your figures are accurate.
Self-Employment tax obligations in Guadalupe, California
If you primarily work as an independent contractor, or are the owner of a sole proprietorship, you have to pay what's commonly referred to as the "self-employment tax," if your annual income from self-employment is over $400.
Employees in a regular employer/employee relationship do enjoy one significant perk that the self-employed do not: their Social Security and Medicare contributions are matched by their employers. So, if you pay $100 in Social Security and Medicare taxes with every paycheck, your employer has to match that. This effectively doubles your contribution to these programs, without doubling their financial burden on you.
However, if you're self employed in Guadalupe, California, or anywhere else, you are required to make the employee AND employer contributions to Social Security and Medicare, effectively doubling your employment tax liability.
The self-employment tax rate is 15.3% of all self-employment income, assuming your income from self-employment exceeds $400 per year in Guadalupe, California. But half of your self-employment tax liability can be deducted from your income tax. This results in a slightly lower income tax bill, which partially offsets this additional tax burden. It essentially means that the self-employment tax only applies to 92% of your income, as opposed to all of it. This means that your effective self-employment tax rate is about 14%, as opposed to over 15%.
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Can a Guadalupe, California Tax Attorney Help?
If you are self-employed in Guadalupe, it's essential that you keep good records of your income and expenses, because a tax attorney will only be able to help you to the extent that you help yourself.
If you have any difficulty calculating your self-employment tax liability, an experienced Guadalupe, California tax attorney would probably have very little trouble helping you figure it out. A good lawyer can also give you practical legal advice, which can help you avoid more serious tax law issues in the future, by dealing with them before they become problematic.