If you have just joined the ranks of the 56.7 million freelancers in the US right now, you probably have a lot on your plate. Beyond the hectic day-to-day work of securing clients, fulfilling orders, and getting your personal brand out there, you will also have to deal with self-employed payroll.
Learning how to set up payroll for self-employed people might seem daunting. However, with the right tools and resources at your disposal, payroll can be a breeze. No matter what industry you are working in right now, paying yourself has never been more straightforward. Read on to find out how to do it the right way.
1. Becoming a Sole Proprietor
Before you can start paying yourself, you need to register as a business. To do this, you can simply form a one-owner LLC, or you can declare yourself a sole proprietor on your income tax forms.
For taxation purposes, you will be declaring the total profits and expenses of your freelance business on your personal IRS 1040 form. All of this is designed to be instant, simple, and straightforward. That way, you can focus on what matters – growing your freelancing business.
2. Self-Employed Banking Arrangements
As a self-employed person, it is important to keep your business earnings separate from your personal banking. This will save you a lot of trouble further down the line. The best thing to do is to set up a business checking account and funnel all of your revenues into there.
Then, you should decide what ‘salary’ you are going to pay yourself and have that amount deposited into your personal bank account on a regular basis. This will allow you to easily keep track of your profits, losses, expenses, and salary.
3. Self-Employed Payroll
Even when paying your own salary, documentation is crucial. A proper record of your salary and deductions is necessary if you ever need to take out a loan, apply for a mortgage, or get insurance.
To do this, you need to find the best payroll service for self-employed people. One of the most well-known is Quickbooks self-employed payroll services. However, there are options that are much more affordable, offer more choice, and are more user-friendly. You can click here to find out more about these.
4. Self-Employed Taxes
Now it’s time to talk about self-employed payroll taxes. You will be happy to know that the IRS does not tax you on the amount of salary you choose to withdraw from your business bank account.
This amount can be as much or as little as you want since you are your own boss. What the IRS will tax you on is the profits made by your business. These taxable profits are basically your net business income for the year, minus expenses.
You will also have to pay for social security and self-employed tax. It is important to remember that you should be paying this tax on a quarterly basis, rather than in one lump sum at the end of the tax year.
Learn More About Entrepreneurial Finance
Self-employed payroll is just one of the important things to master if you want to be a financially successful and stable entrepreneur.
To learn more about the finance hacks you need to grow, we’ve got you covered. Make sure to consult our expert Business and Investing guides today to learn everything you need to know about entrepreneurial finance.