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The BIGGEST tax burden for self-employed business owners



Many fail to realize, but taxes are largest expense for most successful small businesses. Why is this? Well, your tax liability depends on a variety of factors but with proper planning this can be minimized. If you've ever worked as an employee, you've likely noticed your "gross" pay is much larger than what you "net" or bring home. That difference in income can be explained by the Federal Insurance Contributions Act (FICA) payroll tax.


FICA represents funds for Medicare and Social Security. The Medicare tax in total is around 3% of your taxable income, while Social Security lies at about 12.5%. As an employee, you're accustomed to paying only HALF of this burden because your employer is required to match your contribution for the remaining half. On the contrary, as a self employed taxpayer you will be required to cover the entire payroll tax burden. This means your business income will be taxed at about 15%. For example, If you're a business owner with a $110,000 profit your total SE tax will be about $15,550. As you can see this tax can be hefty if the business is profitable!


This is why it is important to ensure you are planning your taxes strategically throughout the year. Quarterly payments should/can be made to the IRS so the burden is not as stressful.


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