Self-employment income and estimated taxes

An employee has taxes removed from every paycheck. A self-employed person receives the full amount and owes the same obligation later. The money feels like income until the return is prepared.

Two taxes, not one

Self-employment income is generally subject to income tax and to self-employment tax, which covers the Social Security and Medicare contributions an employer would otherwise split with you. Planning for only one of them is the most common shortfall.

A working method

• Open a separate account and move a fixed percentage of every deposit into it.
• Track deductible expenses as they happen rather than reconstructing them in April.
• Review the estimate quarterly and adjust when income changes materially.
• Make estimated payments on the published quarterly schedule.

Deductions are records, not guesses

An expense is deductible when it is ordinary and necessary for the business and when you can substantiate it. Mileage logs, receipts, and a clean bank trail are what turn an expense into a defensible deduction.