So you’re ready to clock out of the corporate world and hang out your shingle as a solo-professional. You’ve figured out how much you can reasonably expect to earn and estimated your expenses for marketing, computer equipment, training and so on. You’re ready to go, right?
Don’t forget to include the extra tax burden that the self-employed businessperson faces each year, the self-employment tax. Back when you were on a company’s payroll, you had 7.65% of your wages withheld for Social Security and Medicare while your employer kicked in a matching amount. Now that you’re self-employed, you’ll be responsible for the entire 15.3% of your net business income … in addition to income taxes!
Not only are you going to be responsible for those self-employment taxes and income taxes, but Uncle Sam is now going to be expecting you to send in those taxes on a quarterly basis as “estimated tax” payments. Gone are the days when your employer withheld your taxes; you never saw the money and never had to worry about it. Now you need to set aside a little bit of your profit from every job or project and send in those taxes on your own.
Of course, the key to calculating your net profit each month, and your corresponding tax liability, is to have a reliable accounting system. If you’re not comfortable with bookkeeping or just don’t have the time to devote to it, consider hiring a virtual accounting consultant! Every day, we set up accounting systems and maintain accounting systems for clients just like you!
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.