How To Do a Quick Estimate of Your Self-Employment Taxes

Once you become self-employed, either full-time or part-time, you will need to pay self-employment taxes. These taxes are in addition to your federal and state/city income taxes, and represent the deductions an employer would normally take for what is usually called “Social Security” tax (or FICA and Medi-Care taxes). You must self-report and pay these taxes based on your annual net taxable self-employment wages.

It is important to understand that you may be liable to make quarterly payments of your self-employment taxes. In order to determine this, you may need the help of a qualified tax accountant, you may wish to consult with a paid tax service (such as H&R Block), or you can contact the IRS to ask for assistance in making this determination. This article should not be construed as the final authority on how much self-employment tax you owe and how or when you must pay it.

Net Taxable Self-Employment Income

When you file your federal income taxes (Form 1040), you will need to submit Schedule C (or C-EZ) and Schedule SE. These schedules are available as a free download (as are all federal income tax forms) from http://www.irs.gov/formspubs. You might need to download Schedule SE and print one, so that you can review it while you read the remainder of this article.

Using Schedule C (or Schedule C-EZ), you will first calculate your net taxable income from self-employment. Essentially, you will indicate your total gross self-employment income for the year (the money paid to you from your clients and/or other sources of personal income such as income from affiliate programs or commissions paid from other web-based sources), deduct business expenses (as allowed), and arrive at your net taxable self-employment income. You will use this amount on Schedule SE.

If you need help in completing Schedule C/C-EZ, or any other tax form necessary for filing income from self-employment, you should seek expert advice from a qualified tax accountant, paid tax service (such as H&R Block), or request assistance directly from the IRS. Do not rely on this article as your sole source of instruction for calculating your self-employment tax; this is meant only as a tool to help you estimate the amount of tax you will owe.

Estimating Your Self-Employment Taxes during the Year

Whether you will be required to make quarterly payments or whether you can pay one lump sum at the end of the year when you file your federal income taxes, it may be helpful to estimate your self-employment taxes due, on a job-by-job (or payment-by-payment) basis. For that, you can either use the handy spreadsheet that comes with this article, or just follow the example shown below. Remember that this is only an estimate of the actual taxes that you will owe. You can use this estimate in order to set aside enough money, as you get paid by your clients and/or receive commission checks, so that you will be able to pay your self-employment taxes as required.

To make this easily understandable, a simple example in the amount of $150.00 will be used as an example of income you have received from a client or customer (and will also be shown on the free printable spreadsheet that accompanies this article). This could be a check from a client for services rendered or products delivered, or could be a check received as income from an affiliate program or other type of commission received.

Calculation of Estimated Self-Employment Taxes Due Using Schedule SE

All calculations here reference Schedule SE. These calculations are also shown on the free printable spreadsheet that accompanies this article. You should refer to Schedule SE while you review the calculations shown below.

Remember: This is a method that you can use to estimate your self-employment taxes due. This should not be used as the final authority for calculating your actual taxes due.

Calculate the estimate of self-employment taxes due on $150.00

1. Starting on Line 2 of Schedule SE, report 150.00.

2. Show this same amount on Line 3.

3. For Line 4, multiply 150.00 by 92.35: 150.00 x .9235 = 138.525. Report 138.53 on Line 4.

4. For Line 5, multiply 138.52 by 15.3: 138.52 x .153 = 21.19356. Report 21.19 on Line 5.

For self-employment income of $150.00, you will owe approximately $21.19 in self-employment taxes.

You can use this easy calculation to estimate the taxes that are due each time you receive payment from a client or other source of self-employment income. Of course, this is only an estimate and does not take into account the fact that you can reduce your gross self-employment income by the dollar amount of business expenses you have during the year. However, it is a good way to know approximately how much money to set aside for paying your self-employment taxes.

Calculation of Estimated Self-Employment Taxes Due Using the Free Printable Excel Spreadsheet

The sample of $150.00 is shown at the beginning of the spreadsheet. Below that is the work area that you can use. All you need to do is key in your payment amount into Column A, starting on Row 10. After you key in a dollar amount, simply hit the Enter key to perform the calculation. Try it by inserting 200.00 (key 2,0,0,dot [period],0,0) and hit Enter. The spreadsheet will calculate the estimated taxes due on $200.00, or $28.26.

By calculating your estimated taxes due, you can set aside enough money so that paying your taxes won’t be a financial burden.

Remember: Get tax advice from a reliable and responsible source!

Jan K., The Proofer is freelance proofreader and copyeditor. Visit http://www.jansportal.com for more information about Jan’s proofreading and copyediting services and Jan’s other free resources. Please visit Mom’s Break (http://www.momsbreak.com/) for free printable crafts and projects. ฉ Copyright 2005. All rights reserved.

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FAQ: The Reality of Working at Home

I have spent five years trying to work at home and have had some success. The following are a few facts I have to share with people who are either trying to or have given up trying to work at home.

Q. What about places that put up “pay money to get a job” postings? Are they worth the money? Will I get a job if I spend the money?

A. If a job asks for money, then it is not really a job. Think of it this way, would you pay to fill out an application for a job outside the home? No, of course you would not, so why you would pay someone for a work-at-home job? Let’s say that a listing says “Buy our software and you can work at home.” This probably means that you buy the software up-front and they give you a list of places that might hire you. The software is usually something similar to what you already have in your computer, like a word processor program or something you could buy in a local office supplies store’s discount section. The list of jobs they give you is usually a list of companies they found in the phone book and you can find the same companies yourself just by using the Internet Yellow Pages. And if companies were really hiring work-at-home people, then why would they give the software to another company to sell? They wouldn’t! They would list the software requirements in their help wanted classified advertisement.

Fact to remember: If they ask for money, then it is probably not a real job.

Q. What about these places that advertise “Pay to join our group and we will help you find a job” or “We have hundreds or thousands of jobs listed” sites?

A. I spent over $500.00 on those during my second year of job searching and never did get a job. I’m not saying they are all bad or tried to rip me off. Some were an all-and-all-out scam. Others honestly tried to provide a good job list for me to send my resume, but if you don’t have the requisite skills, it doesn’t matter how many honest job listings are provided. Still others provided job listings that were so old, they were no longer hiring or no longer in business! These sites used old job listings so they could say they had “thousands of jobs” listed. There were also some that listed jobs found listed by “monsters” and headhunters. My best advice is if you want to join one of these places, then you should go to a “work at home”-type message board and ask for other experiences with the company. Ask questions like: Did you really get the material they promised to send to you? What kind of jobs do the sites offer? Did you find a job? Remember that the people who run these companies often go to these message boards and reply to the questions posted by people like you , so be sure and wait till you get several replies so you can get to the truth.

Fact to remember: Do your homework before spending the money – take the time to ask around and check out the company with the BBB (Better Business Bureau) to find out if there have been any complaints listed against the company.

Q.  Are Medical Transcription (MT) jobs good jobs and is this type of job for me?

A. Just because you take the MT (Medical Transcriptionist) classes doesn’t mean that you will get an at-home job. I took all the classes and got certified. I then tested for jobs for a year before giving up on that type of work at home. This is not to say that it isn’t a very good job for some people, it just wasn’t ever going to be the right job for me. I know several people who do MT work at home and love it. Most MT jobs require that you have at least six months’ to a year’s experience at an in-house job before they will consider you for independent, at-home production. Once you have gained your in-house experience (or you have been lucky enough to start out at home), you have to be prepared to work eight hours or more in a row transcribing.

Most transcription jobs call for tight turn-around time (TAT). A typical scenario is that they give you a set time to record their audio using to your transcription-recording machine (either via phone line or web site). Then you have a set number of hours to do the transcription and send it back to the company. This means you have to have these hours set aside five days a week to work, just like you would if you went out to a job. Not all MT work will be consistently supplied, so you might find that you work fast and furious on Monday and Thursday, and have no work on Tuesday, Wednesday, and Friday.

My best advice is if you are interested in becoming an MT, then you should first check out the schools with the BBB. Go to an MT message board and read what other people who do this type of work have to say and ask them questions you might have. Also, buy training tapes to listen to before paying for classes to see if you are the kind of person who can listen to them all day and type what you hear (given that an MT school will obviously teach you the necessary vocabulary and formatting styles, etc.).

Personally, I found that I could barely understand half of what the doctors said. They talk very fast, some have foreign accents, and/or there were high levels of background noise (maybe the doctor was dictating while driving). I wish I had done my homework before I had paid for the at-home course that I took. Now I have a $300.00 MT certificate and a $250.00 transcription machine sitting in a box somewhere in my garage.

Facts to remember: Be sure you really have the time the job requires and the desire to do this type of work, check out MT schools that interest you by asking about the school on MT message boards to see who else has gone to these schools, and check with the BBB to see if there have been any complaints made about the schools that were left unresolved.

Q. I know HTML and made my own web site. Does this mean I can be a Webmaster at home?

 A. Probably not when it comes to jobs found through Internet job searches. Even if you know HTML, can make frames, tables, can create your own graphics, and use copy and paste JavaScript, you probably will not find a web page design job just by doing a regular Internet job search. I can write HTML freehand without an editor and am competent at many other web-page-related skills. I have sent out over 1,000 resumes and have not even gotten one honest reply. Three years ago I finally realized that if you really want to work at home doing web page design, then you need to have at least a two-year of college degree.

This is not to say there are no honest HTML at-home jobs for simple skills like routine updates to web sites, but bear in mind that for every job available for doing HTML out there, there are thousands of people applying for it. I can’t even imagine the number of resumes that are sent daily for jobs listed for HTML skills! My best advice is either go to college and get a degree in CGI, DHTML, Flash, ASP, VB Script, Java Script, Flash, Database Interface, Oracle, and SQL server (to name a few different skills and language codes) or try to develop a clientele of small business owners, local to your area, who need simple web sites and can’t afford expensive “professionals.” Many small businesses would love to have a web site, but either have no idea where to start, believe it costs too much money, or that they have to sell their product online (which they don’t). They can use the web page for advertising, promote sales, or offer printable coupons. The best way to get this type of work is ask your friends to tell any small business owners they know about your services. If your town has a local newspaper or newsletter, consider placing an ad.

Fact to remember: If all you know is HTML, then either get a degree so that you can apply to online jobs or hand out business cards to friends and local small business to create a local clientele.

Q. I can make postcards, greeting cards, and write verses using my home publishing programs. Can I use these skills to get an at-home job?

 A. This can be done on a freelance basis at home. There are books that offer lists of companies that might buy your work. You can visit your local library or book store to get Writer’s Market: 8000 Editors Who Buy What You Write and/or Artists & Graphic Designer’s Market: Where & How to Sell Your Illustration, Fine Art, Graphic Design & Cartoons.

Now you are probably asking, “So what do you do at home?” I make my money using affiliate programs. Affiliate programs are online stores that pay you per click, lead, or sale by placing banner and/or products on your web page. I do make enough money to help pay the bills, an average of $14.00 an hour on a 40 hour work week after overhead such as advertising and web host cost. To learn more about affiliate programs read “Tying Together Web P ages & Affiliate Programs to Make a Profit” at http://work-at-home.momsbreak.com. I have also made many work at home free printable sheets to help you. 

Good Luck with your pursuit of a work-at-home job or home business!

Written by Kimberly Hargis
Owner of Mom’s Break http://www.momsbreak.com
See Mom’s Break ~ Home Business & Work at Home at http://work-at-home.momsbreak.com to find Articles from Expert Guest Columnists, 40 Free Printables and Files, Work at Home Mom Pride Shirts & Much More.
ฉ Copyright 2004  All rights reserved.

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