Starting your own business is an exciting venture, but it comes with responsibilities—one of the most critical being taxes. If you’re running a startup as a sole proprietor, freelancer, or partner in a business, you’re likely subject to self-employment taxes.
This guide breaks down what self-employment taxes are, who needs to pay them, and how to manage them effectively.
Self-employment taxes are the contributions entrepreneurs make toward Social Security and Medicare. Unlike employees, who split these contributions with their employers, self-employed individuals pay both portions themselves.
The total self-employment tax rate is 15.3%:
You must pay self-employment taxes if:
Even if you’re running your startup as a side hustle, these rules apply as long as your net income exceeds the $400 threshold.
If your net income is $50,000:
This amount is in addition to any income tax you owe.
Good news—self-employed individuals can take advantage of several deductions to reduce taxable income:
Self-employment taxes are an unavoidable part of running a startup, but with proper planning and understanding, they don’t have to be overwhelming. Staying organized, making timely payments, and leveraging available deductions can significantly reduce your tax burden and keep your startup on track.
Are you prepared for self-employment taxes this year? Take action now to avoid surprises during tax season!