Tax responsibilities for self-employed individuals

Working for yourself, like being a hairstylist or selling artwork online, has lots of benefits. You can set your own working hours, you can choose the jobs you want to do, and you are your own boss. But, not being an "employee" means you also have to take care of some things yourself, like paying extra taxes and not getting benefits like health insurance or sick pay.

When you work a regular job, let's say at a smoothie shop, your paycheck will have some money automatically taken out for taxes before it even reaches your hands. Included in these taxes are contributions to Social Security and Medicare, two programs designed to support you later in life. This tax is known as the Federal Insurance Contributions Act (FICA) tax.

Here's a crucial bit of information - as an employee, you only pay half of the FICA tax, and your employer pays the other half. Simply put, if the FICA tax amounts to $\mathrm{\$}100$‍, you pay $\mathrm{\$}50$‍, and your employer pays $\mathrm{\$}50$‍.

Now, let's switch gears and imagine you're running a pet-sitting business. You are your own boss. When it comes to the FICA tax, since you're both the employer and employee, you have to pay both halves. That would mean paying the entire $\mathrm{\$}100$‍ in our previous example. This is known as .

Keep in mind, the self-employment tax, which covers Social Security and Medicare, is only one part of your tax responsibilities. As a self-employed individual, you also have to calculate and pay your income tax based on your earnings for the year.

Also, because there's no boss to take out your tax money, it's up to you to put some money aside from every job for your taxes. This might mean creating a separate savings bank account just for this purpose.

Yes, self-employed individuals do have extra tax responsibilities compared to regular employees. But, on the plus side, they also have access to some unique tax benefits that aren't available to those in regular employment. When you work for yourself, you can use "business expenses" to pay less in taxes. Let's say you build and sell birdhouses. Materials like wood and paint, or a new tool kit, can be considered "business expenses", which might help you owe less tax.

Just like you need to put some money away to pay your taxes, you also need to keep track of everything you buy for your business. So, if you buy stuff like a new computer, software, or even paper for your printer, remember to keep the receipts because you will need them when it's time to calculate your taxes. You can use these expenses to reduce your taxable income, so you'll owe less tax.