Taxes for Self-Employed Individuals: What You Need to Know

Starting your journey as a self-employed individual or entrepreneur is an exciting step toward financial independence — but it also comes with added tax responsibilities.

Self-employment taxes are the Social Security and Medicare taxes that freelancers, independent contractors, and business owners must pay themselves. Unlike traditional employees, self-employed individuals are responsible for calculating and paying these taxes through quarterly estimated payments, rather than having taxes automatically withheld from a paycheck.

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I know... more work. 😅 But staying on top of self-employment taxes can save you money, stress, and potential penalties. With the right tools and a little planning, you can confidently manage your taxes and take advantage of deductions that lower your taxable income.

what is self-employment tax? 

Self-employment tax refers specifically to Social Security and Medicare taxes paid by self-employed individuals. When you work for an employer, these taxes are split:

• Your employer pays half
• The other half comes out of your paycheck
  

When you’re self-employed, you pay both portions, which equals 15.3% of your net earnings.

This tax helps fund important programs like retirement benefits, disability insurance, and Medicare health insurance. So while it might sting to pay more upfront, you're investing in your future.

To make the process less overwhelming, here’s what you need to know to stay on top of your taxes, maximize deductions, and avoid unexpected surprises.

here's a quick look at what we'll cover 

what taxes do self-employed individuals have to pay?

Self-employed individuals are responsible for two main types of taxes:

• Self-Employment Tax (SE Tax): Covers Social Security and Medicare taxes. The current rate is 15.3% of your net earnings.
• Income Tax: The amount you owe depends on your total income and tax bracket.

how do i calculate my self-employment taxes?

To calculate your taxes:

• Determine your net earnings (total income minus business expenses).
• Multiply your net earnings by 92.35% - this is the portion subject to self-employment tax.
• Apply the 15.3% self-employment tax rate.
• Factor in your federal and state income taxes based on tax brackets

That 92.35% adjustment is part of how self-employment tax is calculated on IRS Schedule SE, which accompanies your tax return.

To simplify this process, many self-employed individuals use tax software like TurboTax, TaxAct, or H&R Block to estimate and calculate taxes automatically.

Psst... Skyla members may qualify for discounts with TurboTax and H&R Block!

how do i pay my self-employment taxes?

Since self-employed individuals don’t have taxes automatically withheld, the IRS requires you to make quarterly estimated tax payments. These are due:

• April 15
• June 15
• September 15
• January 15 (of the following year)

Payments can be made through the IRS website using the Electronic Federal Tax Payment System (EFTPS).

avoid underpayment penalties

Even if your income changes during the year, you may be able to avoid IRS underpayment penalties if you pay enough throughout the year.

Generally, you can avoid penalties if you pay at least:

• 90% of your current year tax, OR

• 100% of last year’s tax
• 110% of last year’s tax if you are a higher-income taxpayer

This is often called the IRS “safe harbor” rule.

what deductions can i take as a self-employed person?

One of the perks of being self-employed is being able to deduct business-related expenses, including:

• Home office deduction (if you have a dedicated workspace)
• Internet and phone bills (if used for business)
• Equipment and supplies (computers, software, office furniture)
• Travel and mileage (for work-related trips)
• Health insurance premiums (if you pay for your own coverage)

If you work from home, use the simplified home office deduction method: Simply deduct $5 per square foot, up to 300 square feet.

what records should i keep for tax purposes?

Keeping detailed records will make tax season easier and help you back up deductions if you’re ever audited. You should track:

• Income (invoices, payment receipts)
• Expenses (business-related purchases, categorized receipts)
• Mileage (if using your vehicle for work)
• Bank statements (to verify transactions)
• Tax documents (1099-NEC forms, previous tax returns))

Using accounting software like QuickBooks, FreshBooks, or Wave can help you stay organized.

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Psst... Keep all receipts for at least three years in case of an audit. Going digital? You can use apps like Expensify or Everlance to track expenses and mileage on the go.

do i need an accountant or tax professional?

This is your call — but working with a tax professional can be very helpful if:

• You have multiple income streams
• You claim many deductions
• You want long-term tax planning help

They can help you find tax savings, stay compliant, and file correctly — giving you peace of mind so you can focus on running your business.

what's next?

Did you get all of that? I know - navigating self-employment taxes may seem overwhelming at first, but with proper planning and organization, you can stay ahead.  To help, make sure you:

• Set aside money for taxes - don’t get caught off guard.
• Track expenses and income regularly - it makes tax filing easier.
• Stay informed on tax law changes - new deductions could save you money.
• Consult a tax professional if needed - it’s an investment in your financial future
  

Are you a Skyla member?

Did you know that all members get discounts with TurboTax and H&R Block? Check it out!