Futures Trader Self Employment tax
When you work as an employee, your employer withholds the employee portion of your Federal Insurance Contributions Act taxes - the Medicare and Social Security taxes - from your pay, and pays the rest herself. When you're self-employed, you're subject to self-employment taxes instead. These equal the total of both the employer and employee portions of the FICA taxes. As of 2013, that's 12.4 percent for Social Security and 2.9 percent for Medicare. However, if your self-employment income is less than $400 for the year, you don't need to pay self-employment taxes.
Earned, Non-Employee Income
Self-employment tax hits your income from doing work when you're not an employee. This includes income from working as an independent contractor, sole proprietor or partner in a partnership. For example, if you work for a law firm as an associate, you're an employee of the law firm so your wages are hit with FICA taxes, not self-employment taxes. But, when you make partner, you're now a part owner in the business so your income counts as self-employment income, not employee income.
When figuring how much of your income is hit with the self-employment tax, Uncle Sam allows you to first deduct all of your related business expenses. These can include advertising, vehicle expenses, business insurance, interest on business loans, attorney fees, office rent, supplies, wages for your employees and the cost of goods you sell. For example, say you sell widgets. If your sales total $1 million but you have to pay $200, 000 in rent, $100, 000 for your employees and $500, 000 for the widgets to sell, your income subject to self-employment tax is only $200, 000.
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How Much is Self Employment Tax?
The self employment tax which you will pay to the federal government depends on your overall financial picture. Those with other income will pay a higher tax rate than those who only