Being self-employed offers many advantages. However, one disadvantage is self-employment tax. Self-employment tax is the equivalent of payroll withholding for employees, in that it consists of Social Security and Medicare taxes. Self-employment tax is applied to your net earnings. Whether you have one or several businesses, you must calculate net earnings for the tax year. To perform the calculation, you need to know which business deductions the IRS will allow.
1. Calculate your gross earnings for the tax year. This figure should include the earnings from all your businesses, if you have more than one.
2. Talk to a tax accountant or attorney to find out which business deductions are allowable. Deductions may include anything from business travel expenses to trade association membership dues and publication subscriptions.
3. Subtract the amount of the deductions from the gross income amount.
4. Multiply the result by 0.9235 to arrive at the net self-employment income for the year.
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