You must be very on top of things to be a self-employed entrepreneur. As your own boss, you are responsible for holding yourself accountable to do quality work. You also need to keep sufficient records in order to pay your taxes in full.
Just because you may not be working for a huge corporation does not mean that you don’t have to pay taxes. Whatever your business is, you are making money off of it, so you need to pay income taxes. There are a few exceptions to this.
Sole proprietors, LLCs, and partnerships are not liable to income tax, but you still have to pay income taxes individually. This means that the company may not be taxed, but you as an individual will still be responsible for paying income taxes.
FICA stands for the Federal Insurance Contribution Act. FICA taxes are federal taxes that all self-employed entrepreneurs are expected to pay. Entrepreneurs are often required to pay as much as two times the regular FICA tax standard for non-entrepreneurs. Forming an S-corp can help you reduce your FICA taxes by only paying them on your salary.
Depending on where you live and sell your product from, you will need to collect and pay a sales tax. Even if you are selling to consumers in other states, you still need to pay a sales tax on these transactions. To account for this, you should either factor a sales tax into the price of your products or add a sales tax. This will ensure that you get the correct profit you were planning on making on any sales. Being upfront about your sales tax, whether it is included in the price of your products or not, will help you build trust and understanding with your customers.
Paying your taxes is crucial to maintaining a legitimate, sustainable business. If you don’t pay your taxes, you can get into a lot of trouble with the IRS. You may end up having to pay a lot more in the future or even having to forfeit your business to settle tax disputes. If you don’t know how to pay your taxes or handle your finances well, you may consider hiring a professional to help you. With a professional on your side, you won’t have to worry about missing important dates or payments.
Did you enjoy this article? Here’s more to read: How to Protect Your Business From Liability