What Are My Self-Employed Tax Obligations?

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If you carry on a trade or business as an independent contractor or sole proprietor, under the formation of a partnership or as an individual, your tax obligations differ from those of a standard W-4 worker. To fulfill those tax obligations, you must first apply for EIN and obtain an unique, nine-digit identification number.

How to Apply for an EIN

Obtaining an EIN is a fairly straightforward process. It is also free. You can submit your EIN number application online or, if you wish to print it out and fill it out by hand, you can do so and mail or fax a copy directly to the IRS. Once the IRS receives your application, it will assume that you are a legally formed business and prepared to fulfill your tax obligations. Thus you should ensure that your business is legally formed before you apply for an EIN.

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Self-Employment Tax Obligations

As an individual who is self-employed, your tax responsibilities are greater than those of a standard employee. In addition to paying your standard personal income taxes, you must also pay Self-Employment (SE) tax. SE taxes cover the cost of Social Security and Medicare, which are taxes that are generally withheld from most wage earners’ paychecks anyway.

Not all self-employed individuals are subject to SE tax. To determine if you are subject to these taxes, you must first calculate your net profit or net loss from your business. You can do this by taking your business income and deducting all business expenses. If your expenses are less than your income, the difference is net profit, the total of which you can use to determine your income bracket. If the expenses are greater than your income, the difference is a net loss, in which case you may not be subject to self-employment taxes.

You may also be exempt from all tax obligations if your business entity is structured as a church-controlled organization. However, to qualify for said exemptions, you must submit a church controlled organization application.


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