Personal Tax Preparation 

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Small Business Tax Preparation



As a small business owner or self-employed sole proprietor you are now responsible for paying your own Federal Withholding, Medicare and Social Security Tax. Countless new start up business or independent contractors are surprised to find out that they have to pay a lot more tax as a self-employed individual than an employee. The reason you are now required to pay the full amount of your Social Security and Medicare tax is that now you become the employer and the employee which would be similar to a typical split between traditional employees and their employer. You have new language to familiarize yourself when it comes to Medicare & Social Security which the IRS refers to Self-Employment Tax more on this later.

Federal Income Tax

If you are an Independent Contractor (non-employee), Self-Employed, Sole Proprietor, or a Corporation you must file an Income Tax Return based on your net income. If you are a new business you may need to estimate your income tax withholding. Keep in mind that you do not pay income taxes based on your gross earnings; instead you first deduct your expenses to find your taxable income. Your taxable income is what drives your federal income tax requirements. There are certain business expenses you should bear in mind that will reduce your taxable income. Consider that you can deduct purchases of supplies and equipment, rental of office space, mileage for traveling to meet clients, and even some meals you buy for client meetings. If you have been established as business for more than year use last year’s deductions as an estimate for the current tax year. If you’re a new start up business or an independent contractor use one or two months of expenses to estimate your deductions for the rest of the year.

Q: Can I wait to pay my income tax as the end of the year?
A: If you do not have adequate withholding deductions nor pay sufficient estimated tax payments you may be charged a penalty. You may be charged a penalty if your estimated tax is not sufficient or the payments are received late.

Q: How do I figure out how much federal income taxes I owe?
A: To answer this question let’s look at an example, if you make $5,000 per month and you have expenses of $1,000, you would estimate that you will make $4,000 per month, or $48,000 for the year. Your estimate should be close, but don’t worry about making it exact. Use the percentage listed in your top tax bracket as a guide for withholding (note IRS Tax table below). For example, if you estimate that you will earn $48,000 and you are single, your top tax bracket is 25 percent. Simply withhold 25 percent of your earnings after expenses each month. Using the tax 2016 tax table below your total federal taxes are $7,771.25 = $5181.75 + {25% x ($48.000 -37,650)}. This yearly amount would be a equal to a total of $647.60 ($7,771.25 / 12) monthly.


You do not need to wait to end of the year to end up with a fat tax bill consider and save for your estimated quarterly business taxes (Form 941, Employer's Quarterly Federal Tax Return) to avoid potential penalties.

Learn more about what it means to be an Independent Contractor and your new tax requirements.

For more information on Estimated Taxes refer to publication 505

As an independent contractor, self-employed owner or business you are subject to the self-employment tax (SE) of 15.3%. This SE tax is composed of 12.4% Social Security + 2.9% Medicare to arrive at 15.3%. An equal portion of the self-employement becomes a tax decduction on your 1040 Tax Return. According to the IRS “You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax.”

Q: How much in Self-Employment Taxes would do I have to pay?
A: If you were paying yourself $1500.00 bi-weekly that would be $229.50 = ($186.00 {1,500.00 x 12.4%} Social Security + $43.50 {1,500.00 x 2.9%} Medicare)

Add Self-Employment and Income Withholding

Remember that you will owe 15.3 percent for self-employment tax, so add your two percentages together. That is, add your income tax withholding to your self-employment withholding. In the example, that would mean 25% plus 15.3%, for a total of 40.3 percent you should set aside for taxes.

How to save up for your quarterly Estimate Taxes

One of the biggest impacts most new business owners need to consider is to plan ahead for federal taxes. As an employee taxes are automatically taken out of your paycheck. Now that you’re a business owner it means you will need to set aside funds in order to pay those taxes. If you don’t set money aside to pay your taxes at the end of the year you will end up with a tax bill and potentially penalties at the end of the year. One idea to consider is to open an online savings account. You will simply estimate how much you will need save monthly and then transfer that amount to a Tax Savings Account. Choosing an online savings account will also make it challenging for you to access unlike your local bank. Creating an online tax savings account will keep you on track when making your quarterly estimated tax payments to the IRS.

  If you do not report all of your self-employment income to the IRS you may end up receiving a lower than expected Social Security monthly benefit upon retirement


Self-Employment Tax tips are available for the IRS.

Include your self employment taxes with your quarterly  941 business taxes.

For assistance with tax questions contact:

My Income Tax

(954) 381-9711

3489 Davie Blvd

Fort Lauderdale, Fl 33312