Your Side Business Is Subject to Tax

You know that if you are self-employed, you have to pay your own taxes. However, many people don’t realize that a side business — even when you work for “the man” — is taxed as well. Indeed, if you work a regular job, but make money from home on the side (even if it is just income from a blog), you will need to pay taxes if you make more than $400 a year. The Street reports on this self-employment tax:

How much is the tax? If you are lucky enough to be your own boss, you should expect to pay 15.3% of your first $102,000 of income. That figure includes 12.4% for Social Security and 2.9% for Medicare. You should use Form 1040-SE to calculate the magic number. It allows you to shave 7.65% off the amount subject to tax, which can result in considerable savings.

The good news (if any can be said to be had) is that your self-employment tax actually serves as a deduction on your 1040, lowering your overall taxable income. And you should remember that your taxable income is a completely different beast from your self-employment tax. Consult with a knowledgeable tax professional to find out your options and look for ways to reduce what you owe.