Video instructions and help with filling out and completing Why Form 2220 Employed

Instructions and Help about Why Form 2220 Employed

Hello everyone it's great to have another opportunity to talk to self-employed entrepreneurs my name is Jeff Godwin I'm a CPA and I currently work for Intuit TurboTax in San Diego I've been preparing tax returns for over 35 years and this works that well because today we're going to be talking about accounting and taxes and the requirements for self-employed individuals now let's get started first of all we're gonna dive right into new to self-employment sometimes referred to se for self-employment and people wonder what to expect accounting and taxes seems to be the the newest and scariest part of diving into self-employment and I'm hoping that today I can help demystify some of those some of those issues infrastructure that's the first thing that you should be thinking about many times when we're an employee working for an employer we don't have to worry about infrastructure but now that you're running the whole show by yourself start off by thinking about a business license now that's pretty much governed by the whatever county or city that you're operating in and what type of business license you may or may not have to have depending on the industry that you're operating in now what about liability insurance again something you may not have thought about before but this time around look out to different carriers talk to them about the type of business you're in and look to see if if you're needing a liability insurance to cover yourself from any possible exposure to your new self employment business another thing that I would encourage you to do being self-employed running your own business for the first time is be excessively organized now what I mean by that and when what can you do to be excessively organized first of all sole proprietorships normally have a reputation for commingling you know the personal business and you know their business activities and I encourage you to separate them and every way you can think of now a good way to do that is start off by your checking and savings account have a separate an account that's used exclusively for your business separate savings account credit cards it's an excellent idea to have a credit card that you only use for business and nothing else what about self-employment taxes and that even that word alone sounds like something that's people don't really want to deal with but I want to tell you think of self-employment tax is just another word for Social Security now most people when you had a regular salary job or hourly employment we call that w2 income you were used to looking at your pay stub every Friday or every other Friday where however often you got paid and you looked at the at the deductions and you saw fi CA well that FICA fi CA is Social Security now it was about seven and a half percent of your gross salary that they were taking out or deducting for Social Security and then your employer was matching it taking another seven and a half percent approximately fifteen percent and sending it up to the government in earmark under your account your social security number for your retirement and when you became eligible to receive Social Security benefits the amount that you're eligible for is totally dependent on the amount that you paid in so this this this self-employment tax that's that's paid by self-employed individuals is another form of Social Security now the other thing I should tell you is that this this is on profits and not on gross so that's good news so that's seven a half percent plus seventy five percent 15 percent of self-employment tax is going to be on your net profits and not your gross it's also in addition to regular taxes so not to be confused with regular income taxes in addition to now court elite estimated tax payments something else that we need to talk about when you're going to be self-employed and a lot of you are thinking oh wait a minute here why do I have to make curly tax estimates I don't even know for sure exactly what I'm gonna oh why can't I just wait till after the end of the year I'm filing my tax rate and I'll settle up then and you know and the IRS is gonna go no we want you to pay as you go and that's not dissimilar to the withholding that comes out of a regular paycheck when you have w2 income you were in essence paying as you go by deductions out of your paycheck now the government wants you to pay quarterly tax estimates that's every April 15th June 15th September 15th and January 15th of the following year and the way that that's done is you you take an estimated annual tax liability for your self-employment your profits from your business and you divide that by four and make four quarterly tax estimates and you know there's consequences for not doing that if you pay under payment for not paying enough or for pain late the government the government will penalize you for that now keep in mind that you're only making these quarterly estimated tax payments on your self-employment income if you have other income other w2 income from an employer that's already that taxes is already being handled by way of withholding and if your spouse has other income then your spouse's w2 income from wages or hourly earnings that withholding will pay for any tax liability that may be due on that income so let's move on now stop self-employed health insurance premiums now I only bring this up because it's handled a little bit different for self-employed individuals than it is for people that have an employer employers typically have health insurance and and maybe you have a plan that's covered by your employer if not maybe