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About Self Employment

about-self-employment

A Guide to Everything Self-Employment Related

Shifting from working for an employer to being your own boss is exhilarating. You have the opportunity to pursue your business dreams, goals and passions. You have the flexibility to work whenever and wherever you want. But with the new title of boss comes some big responsibilities. You’re now in charge of filing your own taxes and keeping track of your income. It might seem overwhelming, but it’s not too complicated if you have the right information. We’ll answer all your pressing questions like what taxes you pay and what does self employed mean.

Table of contents

Key Takeaways:...Read more

What is self employment?...Read more

Self employed vs employed...Read more

How to be self employed...Read more

What taxes are you responsible for as a self-employed person?...Read more

Quarterly taxes...Read more

What are the different types of self employment?...Read more

Pros and cons of self employment...Read more

When is a good time to switch to self employment?...Read more

What’s a 1099 worker?...Read more

Key Takeaways:

  • They show the federal government how much income you earned, what your expenses were and any other information that could affect how much you pay in taxes
  • They also walk taxpayers through the math to calculate how much they owe in taxes
  • 2022 Tax forms are the way the money is handled. They allow people to schedule their tax payments or ask the IRS for a refund if they ended up overpaying on taxes

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What is self employment?

The self employed definition is someone who works for themselves instead of an employer. Self employed people act as independent contractors and work with other businesses. The possibilities for a self employed business are endless, but typically people specialize in a specific skill or domain. Some examples of self employment are tutoring services, landscaping companies, delivery drivers like Instacart or Doordash and even as a social media influencer or Youtuber.

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Self employed vs employed

When you’re employed, you’re on the company’s payroll and federal and state taxes are withheld from your paycheck. You’re eligible for bonuses, retirement contributions, medical insurance and paid holiday and vacation days. You’re also eligible to receive worker’s compensation insurance if you have an accident on the job and unemployment benefits if you’re laid off or fired. When you’re self employed, you won’t qualify for any of the benefits that an employed worker would receive. Instead, you’ll have to pay your own taxes, open and contribute to your retirement plan and enroll in health insurance. But there are plenty of positive perks when it comes to working for yourself.

Quick tip

Keep track of which expenses you can write off to help lower your tax bill.

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How to be self employed

There are many different approaches to starting a business, but the first step is having a business idea. You’ll also need to consider the amount of time and cash it will take to start your business.
How to be self employed

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What taxes are you responsible for as a self-employed person?

Everyone has to pay Social Security and Medicare taxes or FICA (Federal Insurance Contributions Act) taxes. There’s no escaping these taxes, and essentially every taxpayer has to contribute to these taxes. These taxes help those receiving Social Security benefits, including:
  • Disabled workers
  • Old age retirees
  • Survivors (workers who have died and leave behind a spouse or minor children)
The taxes also go towards Medicare programs that fund elderly or disabled citizens. If you’re a W-2 employee and on the company’s payroll typically, your FICA taxes are automatically deducted from your paycheck and your employer covers half of the 15.3% total tax.
What taxes are you responsible for as a self-employed person?

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Quarterly taxes

You’ll most likely need to pay quarterly taxes when you have your own business. You qualify for estimated quarterly tax payments if you expect to owe $1,000 or more in taxes for the tax year. Quarterly taxes are estimated tax payments made to the IRS four times a year. So, you’ll pay your taxes in increments instead of all at once. You make the payments based on your estimated income for the year. But as the name implies, they are only an estimate. Despite this, underestimating your payment could land a penalty from the IRS. So it’s best to use a quarterly tax calculator to help get accurate tax estimates.
Quarterly taxes

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What are the different types of self employment?

There are certain types of self employment and you probably align with one of the different types. A sole proprietor is run by a single owner and may or may not have other employees in an unincorporated business. An independent contractor works a specific job, like a dentist, doctor or accountant. They are in business for themselves and are not considered employees on a company’s payroll or benefit plans. In a partnership, two or more business partners join together to work towards a business objective, like a real estate group or investment firm. They agree on a certain set of rules in a formal agreement.

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Pros and cons of self employment

There’s no denying that being self employed has some great benefits:
  • Flexibility to work when and where you want
  • Cuts down on travel time if working from home
  • Greater satisfaction pursuing something you genuinely enjoy
  • You’re your own boss
But with two sides of the coin, there are some downsides to working self employment.
  • No one is holding you accountable so everything falls on your shoulders
  • No employee benefits, paid holidays or bonuses
  • Less stability with work
  • Can get lonely
It’s important to look at both the pros and cons of self employment to ultimately make the best decision for yourself.

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When is a good time to switch to self employment?

You might consider taking the plunge and starting your own gig. But there are a lot of financial and personal situations to consider. It truly depends on each individual’s circumstances, but there are some instances when choosing self employment may be the right fit.

Retiring

Growing family

Unemployed

Fresher

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What’s a 1099 worker?

If you’re a self-employed individual, you may have been referred to as a 1099 worker Well 1099 workers or employees are not actually employees, they are just someone that’s self-employed and referred to as a 1099 worker or employee. So it’s just another way of saying a self-employed individual.

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What’s FlyFin?

FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. to find every possible tax deduction. Then, the CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes. Download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and more money on your taxes than last year, guaranteed.
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