Estimated Tax for Sole Proprietors
Sole proprietors are considered self-employed and are required to pay self-employment taxes for income earned from self-employment. Since no employer is withholding for them an amount for taxes from any salary, they are required to pay estimated tax in installments.
Find out from our guide the salient points of estimated tax for sole proprietors.
Tax Requirement for the Self-Employed
Money is set aside for tax payments either by withholding or by estimating tax and paying it in installments through the year. Employers do the withholding for employees, but self-employed individuals pay estimated taxes for income from self-employment and other income deemed subject to SE tax. The definition of self-employed includes those who do business as sole proprietors. As such, they are required to file Schedule C or C-EZ with their Form 1040.
Self-employment tax is tax for social security and Medicare, and comes at a rate of 15.3%, which is the total of 12.4% for social security and 2.9% for Medicare. Payment of self-employment tax is required for those whose net earnings from self-employment is at least $400. Only part of a self-employed’s income is subject to the social security tax, but all of it is subject to Medicare tax. It is the first $102,000 of income for 2008.
Should You Pay Estimated Tax?
If you expect to pay $1,000 or more, including self-employment tax, when you file your return, then you must have to make estimated tax payments. Also, if you paid tax liability or had to file income tax return the previous year, it is most likely you have to pay estimated tax for the current year. Estimated tax is computed by determining net earnings from self-employment using Schedule SE (Form 1040). If you have made payments the previous year, you could also base your current year tax estimates on the amount of the tax you paid the previous year.
For additional information on how to figure your estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax.
You may also use other forms, to see what other forms you can use, visit the IRS website.
To see IRS workshops and trainings, visit www.irs.gov.
Estimated Tax Payment Schedule
Self-employment tax payments are scheduled quarterly beginning on April 15 and the 15th of June, September and January (or the first business day after the 15th) thereafter. Payments should only be made for periods when income is received, otherwise, no payment is required for the tax due date when money was not earned for the taxable period.
Paying enough and regularly is important because the IRS penalizes people for paying less than they should. That is, even if at the end of the year, they paid enough to cover the shortfall or are willing to pay for what is lacking. Payment for self-employment tax is made to the IRS together with the federal income tax. Online filing is possible through the Web site of the Electronic Federal Tax Payment System. For information on online tax payment, visit www.eftps.gov.
Comment
Categories
- Franchise Opportunities
- Wholesale Business Opportunities
- Small Manufacturing Business
- Farming Business Ideas
- Unique Business Opportunities
- Shop Business Ideas
- Small Business Opportunities
- Startup Company Ideas
- Home Based Business Opportunity
- Rural Business Opportunities
- Tips for Buying and Selling
- Starting Rental Business
- Ideas for Small Business
- Free Business Ideas
- Internet Business Ideas
- Store Business Opportunities
- Entrepreneur Business Idea
- Retail Store Ideas
- Service Business Ideas
- Advice for Small Business
- Financing a Small Business
- Restaurant Business Opportunities
- Small Business Articles
- Business Marketing and Advertising
- Repair Business Opportunity
- Professional Career Opportunities
- Business Insurance Information
- Instructor Guides
