Truckers guide to Self-Employment taxBrandon Gentry
Income tax and self-employment taxes must be manually withheld from your business income and paid to the IRS if you are self-employed. You either need to track your business income and expenses via accounting software or hire an outsourced bookkeeper to manage your practice.
Most competent bookkeeping software available nowadays will calculate your estimated taxes, which include income tax and self-employment tax, and provide you with their due dates. You must withhold and pay estimated taxes quarterly to avoid being penalized by the IRS. Transaccts will use your personal information and processed business transactional data to suggest what you should remit to avoid underpayment penalty.
What is Self-Employment Tax
Employers not only withhold taxes from an employee’s paycheck, but they also pay for ½ of their employee’s social security and Medicare taxes. As a contractor or small business owner, we don’t have that luxury.
As such, independent contractors must not only withhold and pay estimated taxes, but they must also make up for the additional ½ of social security and Medicare taxes. This is called Self Employment Tax.
How to avoid Self Employment Tax
Self-employment tax is calculated as a percentage of your Adjusted Gross Income. The only way to reduce your gross income is by offsetting it with expenses, depreciation, and other legal tax deductions.
Business owners need to focus on the many facets and moving parts of their operation. Losing site and focus on near term goals and long-term vision can be affected by tedious tasks that require your attention. I think the importance of bookkeeping is underemphasized because of the intangible results of your time and effort can be unsatisfying.
Use accounting software, like Transaccts, to submit images to yourself or your hired bookkeeper from your smartphone, and have them processed at a later time. Your business will be more successful and is less likely to be impacted financially due to abnormally high taxes and headache.
The Tax Preparer’s Dilemma
As a licensed tax preparer, our job is to prepare a client’s tax return with the most legal tax deductions and the help businesses pay the least amount of tax possible. While some are better than others in finding legal tax deductions (perhaps because of their knowledge of a specific industry), self-employment tax can a large portion of s business’ year-end tax liability.
Although frustrating, the tax preparer cannot be blamed.
Yes, you can owe self-employment tax even though you may not owe income tax. Pointing the finger and finding a new accountant that will be able to “find a loophole” around self-employment taxes isn’t feasible. You’ll continue to run into the same issue at other preparers.
Solution: Know your business. Use Transaccts.
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Recommended for Leased Truck Drivers, Owner-Operators, and all other Independently Contracted Truck Drivers.