How to File Self Employment Taxes in California: A Step-by-Step Guide
As a business owner or independent contractor, it is important to know when to file self-employment taxes. California and the Internal Revenue Service (IRS) have guidelines that a self-employed individual should adhere to closely. Failure to do so could result in serious penalties from the IRS and California’s Franchise Tax Board. If you need assistance learning how to file your self-employment taxes in California, you should consult with an experienced Roseville tax lawyer today.
At the NewPoint Law Group, LLP, our tax lawyers can guide you through the intricate process of filing self-employment taxes. Unlike workers who automatically have taxes withdrawn from their paycheck, self-employed workers must calculate the appropriate amount of taxes to pay in a given quarter. Our firm can help you stay on track with payments and avoid various negative tax consequences. To schedule a confidential legal consultation to discuss your tax situation, call the NewPoint Law Group, LLP, at 800-358-0305.
When Do I Have to File Self-Employment Taxes?
To understand when you must file self-employment taxes, you must understand when you qualify as a self-employed worker. California and the IRS use the same criteria to determine who is a self-employed worker:
- A person who operates a trade or business as a sole proprietor or independent contractor
- An individual who is a member of a partnership that operates a trade or business
- Being in business for yourself, even if you operate a part-time business
This is not an exhaustive list. There are other examples of a self-employed worker.
Being self-employed requires an individual to file quarterly taxes in addition to an annual income tax return. The self-employment tax consists of a combination of Social Security and Medicare, like the Social Security and Medicare taxes that employees of a company have automatically withdrawn from their check. The self-employment tax does not include any other taxes besides Medicare and Social Security.
To determine whether you must pay a self-employment tax, you must calculate your net profit or net loss earned while operating your business. You can calculate this by subtracting your business expenditures from your business income. If your expenses do not exceed your income, the difference between the two will be your net profit. In California, if your net earnings are less than $400, you do not owe a self-employment tax. It is important to remember that self-employment taxes are collected on a quarterly basis, meaning if your net profits are $400 or more in another quarter, you will have to pay a self-employment tax.
In California, the self-employment tax rate is 15.3% of your net earnings. Of that 15.3%, 12.4% will be distributed to Social Security up to a maximum of $118,500 of your net profits. The other 2.9% is distributed to Medicare which does not have a collectible limit.
To learn more about when you need to file self-employment taxes, you should speak with an experienced Folsom tax return attorney.
Filing IRS and California Self-Employment Taxes
A self-employed worker should always be prepared to file self-employment taxes. While your earnings can fluctuate from quarter to quarter if you anticipate earning more than $400 in a given quarter you should plan to pay a self-employment tax.
To file self-employment taxes with the IRS, you must use Form 1040-ES Estimated Tax for Individuals to calculate the amount of tax that you owe. To file self-employment taxes in California, you must use California Form 540-ES, which has the same name as the IRS form. California and the IRS both offer multiple ways to pay your self-employment tax.
It is also important to note that California’s Franchise Tax Board and the IRS both use the same schedule for quarterly self-employment tax payments:
- First Quarter Payment: Due on April 18th
- Second Quarter Payment: Due on June 15th
- Third Quarter Payment: Due on September 15th
- Fourth Quarter Payment: Due on January 15th the following year
If you fall behind on your self-employment tax payments, you will begin to incur penalties. For example, the IRS may charge a certain percentage for each day that your payment is not received. In extreme situations where self-employment taxes have been neglected, a tax lien may be issued. However, under certain circumstances, you may be eligible for an abatement.
Our California Tax Return Attorneys Can Help You File Your Self-Employment Taxes
If you are concerned about filing taxes as a self-employed worker, you should consult with an experienced California tax return attorney today. The tax attorneys at the NewPoint Law Group, LLP possess extensive experience dealing with a wide range of tax issues, and we will utilize this experience to diligently represent you. We understand the complexity involved with keeping track of your tax liabilities, and we are here to help you streamline the process. To schedule a confidential consultation, call the NewPoint Law Group, LLP, at 800-358-0305.