Leaving the 9-5 work force, venturing out on your own is very exciting! Becoming your own boss and taking your future into your own hands can be exhilarating, but it can be frightening as well.  You have a lot to take care of from perfecting your product or service, to finding customers to handling all of the record keeping and financial matters.  In the midst of this whirlwind experience, do not forget your obligation to the IRS.

There is a fairly new tax that the self-employed must pay!  It is called the SECA (Self-employment contributions act).  This includes all of the social security and Medicare taxes that would have been deducted from your paycheck if you worked for an employer.  It also includes the employer contribution, which means you have to carry the full burden of these taxes.  Being self-employed means that you are now the employer and the employee which is why you must pay both portions. It works out to be about 15.3% of any self-employed income over $400 that must be paid to the IRS. 

Many newly self-employed people are not aware of this tax responsibility and do not factor it into their budgets.  This is a huge mistake and can literally cause your business to fail if not paid on time. 

Additionally you are responsible for the standard federal and state income taxes that we all must pay.  However, if you are used to filing your taxes at the end of each year you need to be aware that this may no longer be an option for you!  Self-employed people often have to file quarterly and if they fail to do so, can and will be hit with very large penalties by the IRS.

Understand that even if you file your taxes at the end of the year, you pay what you owe in full, you can still be penalized.  It is called the underpayment penalty and it is applied if you should have been filing quarterly and did not!  Even if you pay everything you owe at the end of the year, you are still considered late if you should have been paying each quarter.

Your best bet is to contact a tax professional and find out where you fit into the filing requirements.  This is not something to leave to chance or to procrastinate about.  The IRS does not accept ignorance as an excuse.  Saying you didn’t know will not stop the penalties and interest from being added to your tax debt! 

You have a lot on your plate right now, trying to get your business off the ground.  It can be overwhelming to say the very least!  However, making sure you meet the IRS requirements and file your taxes when the IRS says they are due has to take top priority! Remember the IRS is not like any other creditor!  They can close your self-employed business down in a heartbeat if you fail to follow the rules!  Take it seriously, be prepared and informed!

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