by Michael Lodge
A lot of people operate their own small business and are unsure as to how to report their income and their Medicare and Social Security Taxes. Here are some guide-lines on how it is done. Work with your tax accountant if you are self employed.
Question: I am self-employed as a sole proprietor. How do I report my income and pay Medicare and social security taxes?
- Report your income and expenses from your sole proprietorship on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), or on Schedule C-EZ (Form 1040), Net Profit from Business (Sole Proprietorship).
- If the total of your net earnings from self-employment from all businesses is $400 or more, use Schedule SE (Form 1040), Self-Employment Tax, to figure your net earnings from self-employment and tax owed.
The self-employment tax consists of the Old-Age, Survivors, and Disability Insurance (social security) and the Hospital Insurance (Medicare) taxes. The IRS will transmit the information from the Schedule SE to the Social Security Administration to figure your benefits under the social security system. See Publication 334, Tax Guide for Small Business.
Note: The federal tax system is a pay-as-you-go plan. Employers generally withhold taxes from employees’ wages or salary before they pay them. However, payers generally do not withhold tax from payments they make to self-employed individuals. Thus, you may need to make estimated tax payments. Publication 505, Tax Withholding and Estimated Tax, provides information on making estimated tax payments.
For tax help call 877.778.1770