Do you have self-employment (SE) income from your main occupation or a sideline business? You may be in for an unpleasant tax surprise when you fill out your return and owe hundreds or thousands of unexpected dollars in SE tax. Ouch!
Strategy: Don’t pay a penny more than the amount required by law. Work through Schedule SE of Form 1040 carefully. Taxpayers often make mistakes on this complex form, especially if they have wages or salary income from other sources.
Here’s how it works: Self-employment tax is the equivalent of Social Security taxes paid by employees, but the tax rates for self-employed individuals are doubled. The Social Security portion of the tax is 6.2 percent for employees; 12.4 percent for self-employed individuals. For 2006, the Social Security tax applies to the first $94,200 of earnings. (This “wage base” increases to $97,500 for 2007.) The Medicare portion of the tax—1.45 percent for employees, ...(register to read more)