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Self-Employment Is Taxing
Gail Rosen, who runs her own accounting firm in Martinsville, N.J., says entrepreneurs in New Jersey pay taxes of 27% to 59% of their net income, including federal, state and payroll taxes.
Still, she says, “I am seeing more people than ever before start their own businesses.”
As an employee, you will pay 6.2% of your earnings (up to $106,800 this year) for Social Security and 1.45% of your income (with no limits) for Medicare, while your employer will pay an equal amount. But when you say goodbye to the Man, you will pay the whole 15.3%.
The good news is that the taxes apply only after you deduct your expenses, and your “employer” half is deductible from your federal taxes. But if your expenses aren’t especially high, your total tax costs will go up.
In addition, you’ll need to budget carefully and pay estimated taxes four times a year. Miscalculate and pay too little, and you will owe penalties to the Internal Revenue Service and maybe your state.
In some cities, such as Los Angeles and New York, you may also have to pay local taxes based on your earnings, even if you’re a solo contractor.
Photo by woodsy.
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Curt on May 7th, 2009 12:15 pm
This is not encouraging to entrepreneurs. We should be lowering taxes to increase the incentive for more people to start businesses and create new jobs to replace the jobs being lost.
The Obama team needs to reverse policy and lower spending, lower taxes and increase interest rates.
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