Links:

➡️ Training registration: https://getlegit.lpages.co/tax10124/

➡️ Get Legit Toolkit wait list:  https://getlegit.lpages.co/getlegitwaitlist/

Transcript:

📍 Welcome again, it's Janet from paper and spark. And here we go with day three of the PSA tax series for e-commerce sellers. I hope that you have found this training series helpful so far. We've discussed sales tax. We've discussed income tax, and I hope that you feel pretty good about what those taxes mean for you.

One more time before we dive into today's topic tomorrow, don't forget that we're hosting the live masterclass when to worry about taxes for your online shop at noon or 8pm Eastern, I'll be sharing when and how to deal with each type of tax we've discussed this week. So you can leave with a clear overview of your financial responsibilities as an online seller.

Also opening the doors to the, get legit toolkit tomorrow. If you need help getting your financial ducks in a row. I'm going to offer a live bonus for attendees who enroll in the course. So try and be there live if you can.

So let's go. Today, I'm chatting about the most overlooked type of tax that I want every online seller to know about and understand. And that is called self-employment tax.

Yuck. What is that? Janet?

So self-employment taxes are technically a part of, or a type of income tax, which we chatted about yesterday. Again, if you're a sole proprietor or a single member, LLC, taxed as a sole proprietor, you will end up paying self-employment tax as part of your income tax bill, all lumped in together. And if you tuned in yesterday, you know that your business income tax stuff is lumped in with your personal income tax stuff.

So this is all one big thing. Here's how it works. Self-employment tax is 15.3% of your business' net profit. Now I can hear you saying, oh no, Janet, this is not fair. Papa government is penalizing us for working for ourselves that we have this additional 15.3 tax that we have to deal with. Why?!.

Keep this in perspective. If you've ever worked as an employee at a regular old day job. You know that you usually fill out a form when you start working and your boss ends up with holding taxes from your paycheck, like every week or every month or whatnot. And that money goes to the state and federal governments for stuff like social security and Medicare. You may have heard this referred to as payroll tax or FICA.

Now as self-employed individuals. Do you get a break from this payroll tax? Of course not. Trust that Papa government still wants that money from you. And thus, they will get it since nobody is withholding FICA from the money we make as self-employed people, because we're not on the payroll. Right.

They've got to find an other way to get it from us at another time. So they take it in the form of self-employment tax. Like I said 15.3% of your business profit to be exact it's 12.4% for social security and 2.9% for Medicare.

Also it's important to note that you only have to pay self-employment tax if your business's net profit was at least $400 that year. So if you made a loss or if your profit was less than $400, you aren't subject to self-employment tax.  You will figure out how much you owe and self-employment tax on a form called the Schedule SE you can Google that and  take a look, but it's a pretty straightforward form. Goes with your schedule C.

Another thing to note is that on the personal side of our tax return, the form 1040, we do get a deduction for half of your self-employment tax. So think that this way.

You are both employer and employee when you're self-employed. Let's say your self-employment tax this year that you're going to pay is $10,000. So over on your personal form, 1040 you get to reduce your adjusted gross income by 5k half of that self-employment tax it's considered like deducting the employer portion of your self-employment taxes. So the IRS does cut us a bit of slack by offering this deduction to reduce your AGI, at least.

I want to reiterate what I mentioned yesterday, too, that if you're a sole proprietor or a single member, LLC, your business income gets lumped in with  your personal and potentially your spousal income. That means your self-employment tax bill gets added to the rest of the income taxes you owe all as one lump sum. If you decide that you do need to pay estimated quarterly taxes, you want to consider self-employment tax as part of that estimated situation.

And again, when you're considering setting aside money to save for your tax bill, Remember how yesterday I gave that rule of thumb of 15 to 30% of your shops, net income. You want to consider that 15.3% of self-employment tax as part of what you're saving for. Also, know that if you have more questions about how to figure this out specifically for your own situation and run your own numbers, I do have in-depth information inside the get legit toolkit course.

So that's self-employment tax in a really quick nutshell. Unfortunately, I see a lot of sellers get caught off guard by this one at tax time. They don't account for it in their projections or their savings. And they get hit with a bigger bill than expected. But the goal of it is really to even the playing field between us and people who are employed so that it all is kind of one in the same. We just pay it at a different time.

Not knowing about this one is understandable because when we start out selling our products online, we really just don't know what we don't know. It's not like the internet mails us Tax 101 guide, explaining the myriad of financial responsibilities and requirements we need to be prepared to deal with.

That's why I hope to see you for a live masterclass tomorrow at noon or 8pm Eastern. I'll cover when it's time to deal with these taxes as an e-commerce seller. And I'll give you an overview of the rest of your financial responsibilities. There will also be time for live Q and a. So I know that maybe these episodes have dug up some  📍 questions that you have about taxes and bookkeeping and numbers, and I'll be happy to answer them for you tomorrow during our class. So I hope to see you there.