So, it finally happened. You have spent years practicing and perfecting your art and not only are you selling your work, but you are also making a profit. After celebrating a job well done, you file your tax return and find that your tax bill is much higher than anticipated. In most cases, this additional amount is caused by the Self-Employment Tax.
If you are employed by a company, 7.65% of your wages are withheld for Social Security and Medicare. In addition, your employer is required to match your payment for both Medicare and Social Security to the IRS. As a self-employed person, you must pay both the employee portion as well as the employer portions of these taxes, which amount to 15.3% of your profit. For example, if your profit for the year was $50,000, you would owe $7650 ($50,000×15.3%) in self-employment tax in addition to the normal income tax you would pay on that level of income.
For more information on paying your taxes, visit www.irs.gov/payments.
To prevent self-employed people from having large tax bills at year end, the IRS requires payment of estimated taxes each quarter. Many struggling artists have trouble saving for these quarterly taxes, but there is a quick solution. You don’t have to wait until the end of the quarter (or year) to make these payments—you can pay them as often as you like. This could be quarterly, monthly, weekly, or daily. Some artists send an estimated tax payment to the IRS every time they make a sale. It’s very simple to make a payment, just go to www.irs.gov/payments and enter your debit card or bank account number and the amount you’d like to pay. It will save you the stress and headache of a large tax bill on April 15th.
the author Michael Johnson is the co-owner of Taxbunny Bookkeeping and Tax Service in Seattle, Washington.