Self-Employment Tax Concerns If you're totally bewildered by the tax and payroll logistics of self-employment, here's some advice for someone just starting out.
Starting your own home-based business means that your tax situation is going to change, but it need not bewilder you. First, you'll have to use forms at tax time. Schedule C (Profit or Loss from Business) and Form 8829 (Expenses for Business Use of Your Home) are the main forms for home-based business owners.
Additionally, you'll have to set aside a portion of your revenues to pay your taxes. One of the nicer aspects of regular full-time employment is that your employer is required to withhold money from your paycheck and send it to the government to cover your taxes. As the owner of your own business, however, that's going to be one of many new tasks for you. The amount of money you'll need to set aside will depend on the amount of money you bring in, plus the deductions and tax credits you're allowed to claim to offset your tax bill. This varies widely from business to business, so there's no standard guideline out there that fits the vast universe of home-based businesses.
To be certain you deduct the right amount of money for your business (and to avoid any unpleasant surprises from Uncle Sam), try one of two things. Either check out the Irs site and use one of its online withholding calculators to determine how much money you should set aside for your taxes, or consult with a good accountant. An accountant who specializes in working with small businesses like yours will not only help you make sure you set aside the right amount of money — and send it in to the government at the right time (you'll likely have to start making estimated tax payments four times a year, in equal installments) — but he or she can also be an extremely valuable advisor as you work through the startup process.
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