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Form OR-TM, TriMet Self-Employment Tax - Oregon.gov

hey what's up everybody welcome back to the mind-blowing video series of tips tricks strategies and hacks for your income taxes my name is tyrone gregory the people preneur and founder of the axe' from square one comm website and i am going to be your guide through the fourth video in this series and this video series is dedicated all to the self-employed and the reason they have their own video is because Norda for this group of individuals to achieve that perfect tax return there are a few extra steps that they must consider if not they're going to be caught off guard but before we get into the details let me explain the exactly who are the self-employed well they are a group of individuals who are considered to be independent contractors because they don't necessarily have one employer or in boss they work for themselves they are independent they perform various tasks perform various projects and once those things are completed they get paid and with the introduction of the internet and social media we also have a new group of independent contractors that we like to call social media preneur and I love these guys because they're doing a great thing online generating what we call passive income but for purposes of this video there are two types that I want to identify and speak to the two types of the self-employed and they are those who are suffering ployed on purpose and those who are self-employed by accident but let me explain those who are self-employed on purpose those guys are the serial entrepreneurs they they know exactly what it is they're doing they made a choice they said I don't want to have a boss I'm gonna go out here and I am going to be in charge of everything that I do they are operating without a safety net they're innovators they're doing everything on their own they are the leaders they are the matter they our self that is only them and they are doing this on purpose it is a choice versus those who are by accident meaning that they have no clue that they are self-employed they just receive a 1099 miscellaneous at the end of the year which also means that they are not prepared for what it means to be self-employed for tax purposes and you'll know if you by accident if you're going to a job daily getting paid but not receiving a paycheck stub or same scenario going to a job daily but you're not having any taxes withheld that's where you're self-employed by accident but in either case whether you're self-employed on purpose or by accident this video is going to help you file that perfect tax return but first things first just like as a regular employee you're going to have to determine your taxable income and get to you taxes and everything that we've discussed so far however for the self-employed is slightly different because it's not the gross income that you're going to start with this year net and here's the formula for determining your net income as a self-employed individual you're going to take your gross income minus your expenses and then you arrive at your net income and that is the starting point for determining your taxable income and for gross income purposes a lot of times self-employed individuals will receive this for the 1099 miscellaneous this is probably one of the biggest identifiers for those who are self-employed but note that not all the time a self-employed will you receive a 1099 because not everybody reports the income that they pay you but this is one of the biggest indicators and more importantly if income is reported in by seven of this 1099 notice it says employee compensation right so that is what determines whether you consider it self-employed or not and by the way if you feel that you receive this form by accident meaning that you feel you should have received that w-2 as opposed to a 1099 miscellaneous I highly suggest that you go speak to your tax professional or shoot me an email because there there are some things that you may need to do but anyway this is what is going to be reported for as far as gross income but now let's talk about your expenses you know there's a an old saying that says it takes money to make money and as a entrepreneur as a serial entrepreneur a self-employed individual you know that all too well to be true right as the independent contractor you are going to spin some money to make some money and the money that is spent has to be taken into account let me give you an example let's say as a self-employed individual you earn seventy five thousand dollars for that tax here and in order to earn a seventy-five thousand you spent twenty five thousand I could have been communication supplies rent whatever so once you deduct the 25 from the seventy-five that you spent your net income is fifty thousand and that's what you're going to use to determine what's taxable that's the starting point right now you can start from the same place as a regular w-2 employee so expenses when it comes to the self-employed I had a Slava what expenses can you deduct and if you are self-employed and you're not quite sure what expenses you can deduct I highly suggest that you go to the IRS gov and download yourself a copy of a Schedule C now here's a Schedule C just part two only and this is the part that has all of the expenses that are self-employed individuals are loud you can see advertising car and truck expenses depreciation insurance mortgage over here your office expenses if you rent vehicles or you know repair supplies every type of expense that's deductible for the self-employed is here now if you need to know what expenses fall in what categories that's where like I said I will go talk to your your tax professional shoot me an email or something maybe I can see you know about about helping you out but just to get a general idea download a copy of the Schedule C and you will know exactly what expenses that you could go to okay all right so now we've arrived at your taxable income everything else from here on out is the same with the exception of that the self-employed has to worry about an additional tax called the self-employment tax and you may be asking well what is it the self-employment tax is a tax that's fifteen point three percent of any self-employment income over four hundred dollars and this tax is not added to any other income except self-employment meaning that if you are a w-2 employee and self-employed this will not be added to anything except for the amount that is earned under self-employment let's break down that 15.3% it is Social Security tax of twelve point four percent and Medicare tax of two point nine it's the same exact as a w-2 employee that's why I don't like to call the self-employment tax and additional tax because it's not additional it's the same exact as if you were a w-2 employee and let's look at this example remember from ability in the first video we looked at this pay stub and net was current earnings of nineteen twenty here and then there we went over to the the tax is what we looked at the Oh taxes but now we'll see here the federal which is the meed is the Medicare tax and then the federal Social Security I know it says oasdi which is for old a survivor disability is sorted but that's just a long word for Social Security so you'll see even as a w-2 employee they also pay that tax now I know some of you were jumping ahead and doing the math to see if that amount is fifteen point three percent of the nineteen twenty and I'm just going to tell you right now it isn't as a w-2 employee we're only responsible for half of those taxes whereas as self-employed you're responsible for the full amount but don't worry don't say it's not fair because even as a self-employed individual you still get credit for a half okay and to figure out the self-employment tax and you can start to go to that that process of receiving the perfect return is figured only form scheduled se again this can be found on irs.gov this type and schedule SC and you will see this form here of course this is just a snapshot of the sexes I think it's about a two-page form but this is for ninety percent of the people who are self-employed we'll focus on this form here and as you can see it's a very simple form only six six lines there and as a matter of fact you're only going to use probably about five lines unless you're old McDonald and you have a farm lines one A and one B don't necessarily apply to you you start here in line two and you go through and just read the lines do the math very simple but remember I said you get a credit for half as you can see here on line six is going to be a deduction for one half as you were multiplied by five and enter it in as an adjustment so everything pretty much about in the south but let's take a look at the tip forty real quick so this is our starting point once you've determined your net amount you're going put in here on line 12 where it says your business income then remember we just figure out the deductable part of the social security so I self-employment tax that's going to go here on line 27 and then here we are line 43 you're still going to go through the same steps as before survive into taxable income the only difference is once you have figured out your tax you're now going to have to figure out your self-employment tax so now now now now now that you've done all that you get to pick a method pick the method that you're going to use to determine your tax liability either the brackets or then look it up the only exception to this for the self-employed is the fact that once you've chosen the method there's no w-4 for the self-employed to fill out they can only do quarterly estimated payments only they don't fill out a w-4 because there is no employer withholding anything and remember the formula for the query estimated payments is you determine your tax liability divided by four which is going to give you the number of payments so of course the example let's go to an example so here is Bryan Bryan is single his net meaning that we've already figured out expenses and everything was seventy-five thousand and of course his pay frequency is going to be those based on the quarterly estimated payments and Bryan still had the same goal to filed that perfect tax return especially as a self-employed he does not want to pay more than he should he wants to pay only what he needs to pay and be done so going through the motions we've determined that his tax liability is ten thousand six hundred and fifty but remember we're gonna have to add his self-employment tax which we've determined was ten thousand five ninety seven so with those two being added to get he has a total tax liability of twenty one thousand two hundred and forty seven dollars okay so because his quarterly has the payment is four times a year so this becomes the formula we're going to take that twenty one thousand two forty seven divided by four which is going to give us his payments remember four equal payments so the first one as five thousand three hundred $11.75 to be made on April fifteenth that's the first payment the second one the same amount doom on June 15 third one same amount due on September fifteenth and his final payment the same amount to a January 15th of the following year as you can see very simple just a few extra steps only for the self-employed and so here we are the conclusion and there it is for my self-employed folks same as a w-2 with the exception of those two extra steps determining your gross income I'm sorry determining your net income then determine your taxable income figure out your self-employment tax add those two individuals together and then you have your total tax liability and now you start to method so of course homework you know I love giving you homework trust me I know as I'm the preneur there's already a lot on your plate especially if you don't have a team in place I know that you are the manager I know you're the sales rep I know that you are the customer service I know that you are the marketing and now yes I'm asking you to be the accountant and the reason that is because so many businesses fail within the first couple of years of operation and 90% of their failure is a result especially r44 look poor financial planning therefore I want you to be a hundred percent ready for your finances so this is your homework play around with the numbers as always try to figure out an estimate as much as you can as to what you think your income is going to be and go ahead and start figuring out how much you need to pay and get those quarterly estimated payments in and of always if you need me you can find me on social media shoot me an email send me a tweet leave a message on Facebook leave a message in the comments below or find me somehow some way I don't know and yeah make sure you continue to subscribe to the channel and we'll go from it have a good