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Freelance Tax Calculator: Everything You Need to Know

Freelancers, small business owners, and independent contractors are obliged to pay self-employment tax. Self-employment tax incorporates Medicare and social security taxes. Taxes are deducted from workers’ salaries and retained. On the other hand, there are no deductions from your income pay stub if you are self-employed. Thus, you’ll have to pay the government as you file your returns.

Whether you are a salaried worker, a self-employed person, or an independent contractor, calculating your net income (income after taxes) can be tricky. With the freelance calculator, you can easily calculate the national insurance contribution and income tax to pay and the pension you will receive at the due time.

Self-Employment Tax Rate

A tax rate of 15.3% applies to all your self-employment net earnings. Net earnings are the monies you have after deducting capital or stock, in other words, profit. The 15.3% tax rate is a total of 2.9% Medicare tax and 12.4% social security tax on net earnings.

Self-employment tax is distinct from income tax. The difference is that employees and their employers share the bill on Medicare and social security; both the employee and employer pay 7.65% each while the self-employed pays the cost (15.3%) alone.

The self-employment tax spreads uniformly to all, irrespective of the income bracket.

How to Lower Your Self-Employed Tax

Calculate your tax deductions and use a self-employment expenses tracker. The expenses tracked are deducted from your tax bill as tax write-offs. Deductible expenses vary from one occupation to another. Below are 12 common write-offs you are eligible for as an 1099 independent contractor.

11 Notable Tax Write-Offs for Independent Contractors

1. Business meals

A meal must be business-related to qualify as a taxable expense. It includes meals taken during business trips, business meetings, sales pitches, or when entertaining clients. You also enjoy a 50% deduction from your meal’s cost if you retain the receipts.

2. Car Expenses

Some of your car costs can be deducted from your taxes if you drive it for business. The deductions are categorized into two; standard mileage and actual expense. The standard mileage, mileage subtracts mileage at a standard rate stipulated by the IRS. The 2021 rate is $0.56. Actual expenses include tires, oil, gas, car depreciation, registration fees, licenses, vehicle repairs, lease payments, and insurance costs. If you have frequent business trips, choose mileage. If you don’t travel frequently, the actual expense is a better option.

3. Home Office

The home office is deducted when used for a full-time business. Measure your home office area to determine the square footage as required by the IRS.

4. Travel Expenses

You can subtract business-related travel expenses from your tax bill. They include parking costs, business meals (50%), Airbnb or hotel costs, telephone expenses, travel tickets, laundry costs, and vehicle expenses. 

5. Internet and Phone Bills

You can only deduct your internet and phone bills according to the time used for business purposes. It is essential to keep a record of the time used for business calls.

6. Educational Expenses

You can deduct educational expenses incurred in improving your skills. These are; textbooks, classes, tuition, newspaper subscriptions, and profession-related events. Every write-off you make must be related to your business.

7. Supplies and Materials

You can deduct the amount for all the necessary supplies and materials for your business in that calendar year.

8. Advertising

Advertising costs are tax-deductible. They are expenses incurred in printing business cards, flyers, running Facebook ads, and Google Ads. You can also subtract the costs of PR agencies and freelancers hired for your adverts.

9. Parking Expenses

Parking fees incurred for your independent work can be written off if your clients don’t pay for them. Parking tickets don’t qualify for a write-off.

10. Contract Labor

You can write off the costs of graphic designers, freelance content writers, or other independent contractors as contract labor.

11. Business Start-Up Costs

Start-up costs include market research, planning, hiring of business consultants, and advertising.

Calculating Self-Employment Tax

First, calculate your net earnings by subtracting business expenses from your gross income. Then apply the 15.3% rate on your net earnings. Approximately 92.35% of your net earnings are taxable. 

If you made a loss or earned a little, select a suitable option in the IRS Schedule SE and work out your taxes.

The social security tax is applicable within a set amount. For instance, in 2020, net earnings of up to %137,700 were subjected to social security tax. In 2021, the amount is $142,800. Any amounts beyond the set limit are not subject to the tax.

Medicare is taxable to all your net earnings irrespective of the amount.

In 2013, the Affordable Care Act (ACA) introduced a 0.9% Medicare surtax. It applies from $200,000 if you file as a single person, $250,000 if you file jointly as a married couple and $125,000 for married couples filing separately. Earnings below the threshold are subject to a 2.9% Medicare tax, and the excess is subject to 0.9% tax. A single person earning $300,000 pays 2.9% Medicare tax on $200,000 and 0.9% for the additional $100,000.

Self-employment tax is payable for net earnings of at least $400 per year. Self-employment tax is also payable for church employees earning more than $108.28.

Income Tax

Employed individuals are taxed based on tax rates ranging from 10% to 37%. Employees can reduce their tax burden and withhold taxes by claiming credits and deductions.

The income tax system uses marginal tax rates. The marginal tax rate applies to income within a particular bracket. If your income is high, your tax rate will be high too.

Final Thought

The set tax systems ensure that self-employed citizens pay equal taxes and enjoy benefits with a similar value to salaried citizens. It is essential to obtain professional tax help if you are overwhelmed or confused about the regulations.

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