If you have a home business, chances are that you also have to pay self-employment tax. Wikipedia explains how self-employment tax is charged in the United States:
which is the equivalent of the combined contributions of the employee
and employer under the FICA tax.
The rate consists of two parts: 12.4% for social security and 2.9% for
Medicare. The social security portion of the self-employment tax only
applies to the first $97,500 of income for the 2007 tax year. There is
no limit to the amount that is taxable under the 2.9% Medicare portion
of the self-employment tax.
As you can see, it is still a requirement to pay Social Security and Medicare taxes as well. This can be discouraging for some, especially since home business owners are also still responsible for income tax, which is different from the self-employment tax. Here are some of the entities that have to pay self-employment tax:
* Independent Contractor
* Partnership member
* Sole Proprietorship
If you are operating as a C-corp or an S-corp, then you do not have to pay self-employment tax. But you still have to pay income tax on your earnings.
It is a good idea to consult with a tax professional or an accountant to discuss which arrangements are most likely to help you get the best possible tax situation.
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=114f26f2-f6e8-4c04-8ed8-8dacad00ed93)
Leave a Reply