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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Orvell on November 08, 2012, 08:08:30 AM

Title: Self Employment and Taxes - Where to Start?
Post by: Orvell on November 08, 2012, 08:08:30 AM

Hello hive mind of the internet! I'm hoping you guys can point me in the right direction here.

I hope to be self employed at some point in the future. So far I am still getting my paycheck the old fashioned way, but eventually I intend my illustration/art to provide at least some income.
How the heck do I figure out this tax mess?
Anyone self employed have a good resource to start figuring it all out?
Thanks in advance people!

Note: I live in MN in USA

Title: Re: Self Employment and Taxes - Where to Start?
Post by: Taylor on November 08, 2012, 10:28:57 AM

I have a full-time job, but also a side-hustle that I file self-employment taxes for. It's really easy, you just do the 1040 plus the Schedule C. If you make over a certain amount, you owe taxes on your profits for the year from your business. Last year I did all my own taxes with a calculator, pen, and access to the IRS website. Took about 2 hours.

I recommend the NOLO book on Small busines taxes/deductions.

http://www.nolo.com/products/tax-savvy-for-small-business-savvy.html


It also seems from my limited experience that a small self-employment income results in very low taxes. This post from MMM sums it up well. http://www.mrmoneymustache.com/2012/06/04/the-lovely-low-taxes-of-early-retirement/

Title: Re: Self Employment and Taxes - Where to Start?
Post by: Orvell on November 08, 2012, 12:51:49 PM

Thanks so much! I'll check both of those out ASAP.

Title: Re: Self Employment and Taxes - Where to Start?
Post by: DDrake on November 09, 2012, 03:10:01 PM

I would not say its really a small amount, largely because you are paying both ends of your Social security and medicare tax on any self employment profits.  You do get to deduct half of it, but if you go through the forms its fairly self explanatory.

To get  a rough idea figure between 13.3 and 15.3 for your self employment tax (depends on the tax law gaps that will be put in place by the end of the year)  After that guessing how much you would pay MN and the IRS would depend on how much your deductions are and how much you make ect. 

Summary:  If you plan to make the same amount as you do currently,   Add 7.65% of the total amount of your wages and you will have a rough idea how much you will be paying in tax.   Make sure you track everything that could be construed as a business expense and you will do okay in the end.