What is the self-employment tax?
You’ll also have to pay your state taxes, but fortunately there’s no state self-employment taxes.
Tax deductions for self-employed
Many freelancers may qualify for a deduction of up to 20% for qualified business income. In addition, contributions to certain retirement accounts may also be tax deductible. Keep in mind, the Internal Revenue Service (IRS) dictates the maximum amount you can contribute in a given year.
Other potential deductions if you’re self-employed or a business owner include business-related expenses, such as health and business insurance premiums, marketing, legal and professional fees, office supplies, auto and travel costs, and more.
For more information on tax deductions, visit IRS.gov.
How often must you pay self-employment pay taxes?
How to calculate self-employment taxes
In general, the minimum amount you'll need to pay each quarter to avoid penalties for underpayment is either:
- 1/4 of 90% of what you’ll owe for the current year, or
- 1/4 of 100% (110% for higher incomes) of what you owed for the prior year. This is called the safe harbor amount.
If you end up underpaying for any quarter, you may owe a penalty. To avoid mistakes or missing payments, you might want to consider working with a tax professional, who can help you determine how much to pay each quarter. You can then focus on your business.
IRS.gov offers additional resources on taxes for the self-employed, including its Tax Withholding Estimator tool that can help you figure out how much you should withhold for taxes.
How to manage your self-employment taxes easier
Location If you earn money in multiple states, make sure you know the rules for those states. Most states have an earnings threshold. If you earn more than that amount working in the state, you’ll need to file a tax return.