When it comes to tax time, your employment status makes a difference in the way you file. There are different tax requirements for those who claim employee income tax and those who claim self-employment tax. Your local accounting firms in Las Vegas have qualified experts that can ensure you file the correct forms, but here is some valuable information to help you understand the basic requirements when filing your taxes.
First, it helps to understand the breakdown of income taxes. When an employee receives a paycheck, he sees that part of his income goes to federal taxes, Social Security taxes, Medicare taxes and typically state taxes. The employer has a responsibility to pay half of the rate for Social Security and Medicare taxes.
A self-employed person is responsible for paying income taxes in each of these categories too, but there isn't an employer to pay the other half of the Social Security and Medicare income taxes. This is why it is important to file the proper forms when reporting your income. It ensures that you calculate the correct amount that you owe.
Being self-employed means that you are a business owner, a freelancer or an independent contractor for another company. You are responsible for keeping accurate records of your income so that you can report the correct earnings when filing because you will not receive a W-2 form like you would if you were an employee.
When you are self-employed, Social Security and Medicare taxes are not split in half. Instead, you are responsible for paying the part that the employer would otherwise be paying. That means that the required self-employment tax rate that you pay is higher. However, you can claim half of what you pay in self-employment taxes as an income tax deduction.