Self Employment Tax in Palos Verdes Estates, California
In Palos Verdes Estates, California, there are particular taxes that are enforced 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 confirm 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 Palos Verdes Estates, California
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.
Employees in a regular employer/employee relationship do enjoy one considerable 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 basically doubles your contribution to these programs, without doubling their financial burden on you.
However, if you are a self-employed business owner in Palos Verdes Estates, California, you are accountable for both the employee and employer contributions to Medicare and Social Security. This essentially doubles your self-employment tax rate.
The self-employment tax rate is 15.3% of all self-employment income, assuming your income from self-employment exceeds $400 per year in Palos Verdes Estates, California. But half of your self-employment tax liability can be deducted from your income tax. This results in a slightly reduced 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 Palos Verdes Estates, California Tax Attorney Help?
If you are self-employed in Palos Verdes Estates, 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 Palos Verdes Estates, California 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 significant issues from forming in the future.