Hey Solopreneurs, listen up! If you've ditched corporate life and have to write checks to Uncle Sam yourself, this post is your new BFF. 💌
This is the first post in a new series where I will break down everything you need to know when you stop working for the man and start working for yourself.
So let’s jump in!
There are four types of taxes you will likely pay this year as solopreneur superstar.
Fab Four of Taxes:🌟
Federal Income
State Income
Social Security
Medicare
Let's break it down, shall we?
Federal Income Taxes
Paid to our friends at the IRS. How much is determined by you filing status and how much you earn. There are seven brackets - 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The lower your taxable income is, the less you pay.
Medicare & Social Security Taxes
Also known as "Self-Employment Taxes." These babies are a flat 15.3% of your income (12.4% for Social Security and 2.9% for Medicare). If you previously had a full time job your employer payed half and the remaining half was taken out of your pay check. Now, you're the boss and the employee, so you get to pay both. Lucky you! 😒
State Income Taxes
Ah, the state wants its cut too. Rates vary, but if you're in California or New York, brace yourself for up to 12% of your taxable income going to the state- on top of your federal income tax. On the flip side, seven states - Alaska, Nevada, Florida, Wyoming, New Hampshire, Tennessee, Texas and Washington - have no state income taxes.
Now for some some quick math..
Let's say you are living in California, single, pulling in $100,000 a year with zero expenses. Your tax breakdown would look something like this:
Federal: $23,356
Self-Employed: $14,130
State: $4,784
That adds up to $28,140 or about 28% of freelance income.
Most knowledge worker freelancers (creatives, business consultants, coaches, etc) don’t have a lot of hard costs so taxes will likely be your single largest expense.
Sooo…knowing your tax expense can help you back into the appropriate pricing to hit your take home income goals.
I’ve linked a free self-employed tax calculator I built in the comments. Please use it to get estimate your personal tax expenses for this year. 📊
My next post will be all about one of my favorite things to hate- #quarterlytaxes- What are they, who needs 'em, and how do you pay? 🤔
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🔔 Follow yours truly, Angie Moody from Ruby Money
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