Everything freelancers, consultants, and small business owners need to know about taxes, explained clearly.
When you're self-employed, you're on the hook for both halves of Social Security and Medicare tax, what your employer used to cover, and what came out of your paycheck. Together, this is called self-employment tax, and it's 15.3% of your net business income.
On top of that, you still owe regular federal (and usually state) income tax on your profit. This is why self-employed people are often surprised by how much they owe, it's not just income tax, it's both.
Quick math: If your business nets $60,000 this year, expect roughly $8,478 in self-employment tax alone, before any income tax.
The IRS doesn't wait until April to collect what you owe. If you expect to owe $1,000 or more for the year, you're generally required to pay estimated taxes four times a year.
Missing these isn't just inconvenient, it can mean underpayment penalties even if you pay everything in full come April. Use our quarterly tax calculator to estimate your next payment.
Every dollar of legitimate deduction lowers both your income tax and your self-employment tax. A few that are commonly missed:
An LLC mostly affects legal liability, it doesn't change how you're taxed by default. An S-Corp election, on the other hand, can meaningfully reduce your self-employment tax once your profit is high enough, because only your "reasonable salary" is subject to SE tax, not all of your profit.
This usually only makes sense once your net income is consistently well above what you need to pay yourself a fair salary, the added payroll and filing costs aren't worth it below that point. This is exactly the kind of decision worth running real numbers on before deciding.
You don't get a 401k match, but you have options that can shelter significantly more income than a typical IRA:
These aren't just retirement tools, they're also one of the most effective ways to lower your taxable income each year.