Self Employment Income Tax And Income Tax Deductions

2007-03-08 10:33:40

( Insurance )



A self employed individual is someone who works as an independent contractor such as a lawyer, accountant, freelance writer, salesperson, or any other occupation wherein you are not considered an employee. The category of self employed individuals would also include people who are sole proprietors, are partners that carry out a business or trade, make a profit out of any business activity, work full or part-time in any business, or work as a church employee.

Self employed people differ from employees in that, an employee is a person who does not have direct control over the tasks that are assigned, and how the task is to be done. If you have control over the work that you do, and the method of performing services for other parties, then you are considered as a self employed individual.

If you are self employed you are required by law to pay self employment income tax, whose percentage is based on the net income that you earn. Self employment income can come in the form of wages earned from property rentals, payments received from services provided as a partner or proprietor of a business, or any other type of income that is received on a regular basis from any services rendered.

Aside from the self employment income tax that needs to be paid, you also need to pay self employment insurance comprised of social security tax, which is beneficial when you become a senior citizen later on or become disabled, and Medicare tax which becomes useful each time you become hospitalized. The amount that needs to be paid for both types of taxes is usually a certain percentage of your net income.

Being self employed also means that you become qualified for self employment deductions. Any expenses that you incur for your business operations can be deducted from the income that you earn.

A major tax deduction on self employment health insurance is permitted for individuals who pay self employment income tax. This is especially true when you make your spouse as an employee of your company and provide health insurance: the full amount of health insurance costs can be deducted from your self employed income tax.


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