Monday, May 12, 2008

Who Must Pay Estimated Taxes?

Who Must Pay Self-Employment Tax?

You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
*Your net earnings from self-employment (excluding church employee income ) were $400 or more.
*You had church employee income of $108.28 or more.
*Your net earnings from self-employment are based on your earnings subject to SE tax. Most earnings from self-employment are subject to SE tax. Some earnings from employment (certain earnings that are not subject to social security and Medicare taxes) are subject to SE tax.


If you have earnings subject to SE tax, use Schedule SE to figure your net earnings form self-employment . Before you figure your net earnings, you generally need to figure your total earnings subject to SE tax.
Note: The SE tax rules apply no matter how old you are and even if you are already receiving social Security or Medicare.

Are You Self-Employed?
You are self-employed if any of the following apply to you:

*You carry on a trade or business as a sole proprietor or an independent contractor.
*You are a member of a partnership that carries on a trade or business.
*You are otherwise in business for yourself.

Trade or business. A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. The regularity of activities and transactions and the production of income are important elements. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need, however, to make ongoing efforts to further the interests of your business.Part-time business. You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job orbusiness also may be self-employment.
Example. You are employed full time as an engineer at the local plant. You fix televisions and radios during the weekends. You have your own shop, equipment, andtools. You get your customers from advertising and word-of-mouth. You are self-employed as the owner of a part-time repair shop.
Sole proprietor. You are a sole proprietor if you own an unincorporated business by yourself, in most cases. However, if you are the sole member of a domestic limitedliability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation. For more information on this election and the tax treatment of a foreign LLC, see Form 8832, Entity Classification Election.
Independent contractor. People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers whoare in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has theright to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to SE tax.You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if youare given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor and your earnings are generallynot subject to SE tax. However, your earnings as an employee may be subject to SE tax under other rules discussed in this section.For more information on determining whether you are an independent contractor or an employee, refer to the section on Independent Contractors vs. Employees
Pay Self-Employment Tax?You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
*Your net earnings from self-employment (excluding church employee income ) were $400 or more.
*You had church employee income of $108.28 or more.
*Your net earnings from self-employment are based on your earnings subject to SE tax. Most earnings from self-employment are subject to SE tax. Some earnings from employment (certain earnings that are not subject to social security and Medicare taxes) are subject to SE tax.

If you have earnings subject to SE tax, use Schedule SE to figure your net earnings form self-employment . Before you figure your net earnings, you generally need to figure your total earnings subject to SE tax.
Note: The SE tax rules apply no matter how old you are and even if you are already receiving social Security or Medicare.

Are You Self-Employed?

You are self-employed if any of the following apply to you.
You carry on a trade or business as a sole proprietor or an independent contractor.
You are a member of a partnership that carries on a trade or business.
You are otherwise in business for yourself.
There are licensed professionals that can help you prepare your self-employment taxes, if you are having trouble. If you are in question concerning preparing your taxes, don't prepare them yourself, find help before you leave out figures that could cause you to be audited in the future

3 comments:

Carol Eep said...

Interesting post. I'd like to become self-employed and run my own business since I'm tired of working for someone else. This is very helpful for obvious future purposes. Anyway, lately I've become more interested in buying a business instead of starting one from scratch. Any suggestions? Advice? Thanks so much.

K. Z. O'Toole said...
This comment has been removed by the author.
K. Z. O'Toole said...

@Carol, I suggest looking into BizTrader.com. It's an online global marketplace where you can buy or sell a business. You can also use it to find professional help, like if you need to find a lender, broker, accountant, etc. There are plenty of preexisting businesses available for you to purchase. It's a good place to find a small business on the Internet.

You can also check out small business groups in your area. They could help you out as well.

Good luck!