Author Topic: What are taxes like for running your own business part time?  (Read 1776 times)

purplish

  • Stubble
  • **
  • Posts: 140
What are taxes like for running your own business part time?
« on: September 27, 2015, 12:32:59 PM »
I heard that it's a lot, not sure if that's true though, however I figure you guys would know the best!  I plan on having my own business in a year or so, trying to figure things out now beforehand.

DaveR

  • Stubble
  • **
  • Posts: 244
Re: What are taxes like for running your own business part time?
« Reply #1 on: September 27, 2015, 12:55:04 PM »
If your business isn't profitable, then taxes are not an issue. But you're probably aiming for some profit.

I'll assume you are in the US. The big thing is to remember that self-employment (SE) taxes need to be paid on all income, and since you are the company and the employee you pay both: 15.3% total. Make $10k in profit and come tax time, you'll need to sent $1,530 to the IRS (if you haven't made estimated payments).

There are lots and lots of other fun tax considerations, but the SE hit is one that seems to surprise.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4729
  • Age: 34
  • Location: Seattle, WA
Re: What are taxes like for running your own business part time?
« Reply #2 on: September 27, 2015, 01:03:10 PM »
On the plus side, you're able to reduce your profits through deducting business expenses, health insurance, and retirement contributions. But whatever profit remains will have 15.3% taken off the top for self employment taxes, plus regular income taxes at whatever marginal rate you might have.

GizmoTX

  • Handlebar Stache
  • *****
  • Posts: 1321
Re: What are taxes like for running your own business part time?
« Reply #3 on: September 27, 2015, 01:06:59 PM »
https://gigaom.com/2007/02/08/six-things-you-must-know-about-self-employment-taxes/

Read some of the Dummies books about self-employment, small business, & freelancing. They should be in a public library.

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2176
  • Location: Northern California
Re: What are taxes like for running your own business part time?
« Reply #4 on: September 28, 2015, 10:46:59 AM »
The reason taxes on your own business are higher than taxes on paycheck income is that you have to pay both the taxes that an employee pays and the taxes that an employer pays. The simplest method basically takes all the business income as earned income and you pay "Self Employment Tax" which basically is just the employer and employee taxes for social security and medicare all rolled up into one. If you expect the business to provide significant income, it is likely worth your while to learn about the various ways you can structure it to provide both earned income and investment income to optimize taxes.

La Bibliotecaria Feroz

  • Magnum Stache
  • ******
  • Posts: 4195
Re: What are taxes like for running your own business part time?
« Reply #5 on: September 28, 2015, 02:02:32 PM »
I've made about $10k per year at side hustles and I've never really noticed the taxes. I do not pay estimated taxes. I think we owed some money last year, but not a frightening amount (maybe a few hundred bucks?), and part of the reason was that we changed tax brackets mid-year. The year before, we actually qualified for the Earned Income Tax Credit, so the government gave us back more money than we had paid in! (Mr. FP was a boarding school teacher then, so we had low earnings but free housing. I think any junior faculty with a SAH spouse got the EITC.)

I'm a married lady with a couple of kids, so YMMV. We have all those childcare breaks and exemptions and whatnot.