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A small business blog featuring tips to help entrepreneurs succeed in the small business world. Topics include family business, human resources, marketing, money, networking, operations, ownership, startup, taxes and technology.
Estimating Self-Employed Tax
Yesterday I spent a good part of the afternoon attempting to estimate my tax liability for 2005 while looking ahead to 2006.
As all small business owners know, self-employment tax is a major part of your total tax liability each year. It represents 15.3 percent of your net earnings from self-employment as reported on Schedule SE.
The tax consists of two portions:
12.4% for Social Security – $11,160.00 maximum (2005).
2.9% for Medicare – no maximum.
Net Income * .9235 = Net Earnings
Net Earnings (up to $90,000 in 2005) * .124 = SStax
Net Earnings (no limit) * .029 = MCtax
SStax + MCtax = SE Tax
Assume your company earned $55,000 net income. Your estimated self-employment tax is figured as:
55,000 * .9235 = $50,792.50
50,792.50 * .124 = $6,298.27
50,792.50 * .029 = $1,472.98
$6,298.27 + $1,472.98
SE Tax = $7,771.25
Disclaimer: Tax results submitted to the IRS should be figured by a qualified accounting professional.
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