For many, the freedom of self-employment has great appeal. Along with the freedom come the responsibilities of business ownership that are quite different from working as an employee who is paid a salary or wage subject to payroll deductions. One of the primary concerns is self-employment taxes.
Who Is Self-Employed?
If a person operates a business as a sole proprietor or earns income as an independent contractor, they are considered self-employed for tax purposes. As a St. Louis business lawyer emphasizes, it is important to realize that even part-time or seasonal businesses count. As long as an enterprise turns a profit, there are tax considerations.
As are all citizens, a self-employed individual is required to file an annual federal and state tax return. However, the IRS and the state of Missouri requires a quarterly tax payment for those self-employed. These are estimated payments calculated based on anticipated profit for the year. A final reconciliation of payments made and actual tax owed is made on the annual return. Under certain circumstances best explained by a St. Louis business lawyer, there may be penalties and interest owed for underpaying estimated taxes.
Self-Employment, or SE, Tax
Social Security and Medicare taxes are withheld as payroll deductions from wage and salary earners. In addition, the employer contributes one-half of the amounts owed. Self-employed individuals, on the other hand, contribute the entire amount owed. The amount owed for SE taxes is included in the federal quarterly tax payments made.
Contact a St. Louis Business Law Attorney for Legal Advice
For a full understanding of the legal requirements and responsibilities of business ownership, call the Law Office of Christopher Bent at 314-551-0898.