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Eileen M. Carrero, CPA
Financial Advisor, CPA
Eileen Carrero Financial Services, LLC
Wealth Management, Tax & Accounting
4917 West 144th Place
Midlothian, IL 60445
Phone: 708-489-1035
Fax: 708-489-1036
Email: eileen.carrero@ceterafs.com
Website: www.myecfs.com
November/December 2023
Paying Taxes When You're Self-employed
Whether you have just started a side hustle or have been freelancing for years, filing taxes can present challenges. Here are some points to keep in mind.
Your Business Structure
As a freelancer, you can set up your business as a sole proprietor or a Limited Liability Company (LLC). An LLC can be taxed as a sole proprietorship or as a corporation. You’ll pay taxes on business profits in addition to self-employment taxes.Self-employment Taxes
If you’re new to freelancing, you might be surprised to learn that you’re on the hook for both the employee and employer share of FICA taxes. FICA tax equals 15.3% of income — 12.4% for Social Security and 2.9% for Medicare. If your income is greater than $200,000 ($250,000 married filing jointly/$125,000 filing seperately), an additional Medicare tax of 0.9% applies.Quarterly Tax Payments
Freelancers, small business owners, and independent contractors may have to make quarterly estimated tax payments to the IRS to avoid being subject to an underpayment penalty.New Reporting Requirement Threshold
In 2023, you will receive a 1099-K for any transaction settled through third-party payment networks (credit cards, debit cards, etc.) once the total exceeds $600. The amount doesn’t have to come from a single transaction.Save on Taxes with a Retirement Plan
Self-employed individuals can reduce the amount of taxes they owe by contributing to a retirement plan. A SEP (Simplified Employee Pension Plan) has a high contribution limit — 25% of net earnings, up to $66,000 for 2023.A SIMPLE (Savings Incentive Match Plan for Employees) IRA allows you to put all your net earnings from self-employment into the plan, up to a total of $15,500 in 2023. Individuals age 50 or older can contribute an additional $3,500.
Other Potential Deductions
These deductions can lower your tax bill: continuing education; vehicle expenses; home office expenses; internet and phone service; travel to business meetings and conferences; and interest on business loans. Financial and tax professionals who work with business owners can help you get organized.
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