Self Employment Taxes - How The Taxation System Works!

Self employed people in the United States feel differently when it comes to having to shrug out hard earned cash in the form of taxes. Self employed individuals have to pay as much tax as an employer and an employee combined – so much for helping the unemployment scenario in the country!

This is a give and take situation. The US government allows self employed individuals a lot of deductions on their taxes. These taxes may be so high that people think twice before taking up any self employment opportunities. Entrepreneurs in the US claim that the government is indulging in the biggest fraud ever by imposing huge taxes on self employed individuals and then giving them tax deductions. This amounts to them having to pay a set amount of taxes anyway – so why not do away with the deductions and lower the taxes charged in the first place?

So far as Medicare and Social security taxes are concerned if your income crosses $400 you are liable to pay more than 15% of your income as tax to the government. That is 15% over and above the usual income tax self employed individuals are expected to shrug out. And then if you own your home you will find that you are paying the government more than half your total income in the form of taxes.

Self employed people argue that this is a very unfair level of taxation and is not encouraging at all for people who want to get into self employment in the United States. Countries like Spain and Italy have self employment taxed designed in a way that will encourage their citizens to seek self employment and in a way help ease the unemployment situation in the country.

When you get into self employment you will be lucky to earn a little over $100,000 in the first year. You will not have to pay the 12% Social Security tax on the amount that exceeds the 100,000 this is a saving but you will have to pay the Medicare part of the tax. Then when you are calculating the income tax part of your taxes you can deduct a half of the taxes from your self employment taxes –these are significant savings on the tax front.

Claiming rent deductions for a home office is another way of saving on taxes. Just calculate the annual rental for the home office and deduct it from your income. This is considered as an expense – but then the government will tax you on an income from your property, anyway it still saves you a few bucks in the long run.

So if you do diligent research you will find that there are many ways you can save on taxes you would normally pay as a self employed person. But then it all calls for additional effort and time – why not just do away with the deductions and lower the taxes?

Article Source: http://www.articlesbase.com/careers-articles/self-employment-taxes- how-the-taxation-system-works-703278.html

Abhishek is a Career Counselor and he has got some great Career Planning Secrets up his sleeves! Download his FREE 71 Pages Ebook, "Career Planning Made Easy!" from his website http://www.Career-Guru.com/769/index.htm . Only limited Free Copies available.