Self Employment Income

Your are correct in that you will pay Self Employment tax.

I assume your expenses are 700 so you expect a profit of 4500-700?

You will file Form 1040 Schedules C (or if you can us it, C-EZ) and SE. The SE is where your SE tax is calculated, and it will be just over 14.1% of your "profit." Half of your SE tax is also used to reduce your Adjusted Gross Income.

As for income tax, yes, that 3800 profit becomes income on form

IRS Publication 334 is for small business owners and has more than you probably want to know.

I am assuming that your reference to $700 is about what you think the self employment tax will be.

If your NET INCOME, after deductible expenses, is about $4,500 then your self employment tax MAY be about $700. BUT there are a lot of variables that you haven't touched on. Do you have other income - if you also worked a day job and your W-2 earnings hit the FICA cap then you'd only owe Medicare tax and NOT the full FICA tax on the self employment income. This would mean you'd only be on the hook for about 3% in SE tax instead of

Whether you'll also have to pay income tax is another question. You say you're married with one child. Without sounding like an A**, how on earth does a family live on $4,500 a year? It costs more than that just to eat!

As a married person you'll likely file a JOINT return with your spouse. You'll need to combined your incomes to figure your overall tax burden. You could file separately, but NOT as single and if you lived together NOT as Head of Household either. If you do file separately your tax brackets will be different and you'll have to decide who gets to claim the kid.

You may need the help of a tax pro this year. Self employment is a great thing, I'm a big fan and promoter of it. BUT it needs to be addressed properly. If $4,500 is all of your gross income and you overlook some deductible expenses you could easily pay more in tax that it would cost you to have the return correctly.

Good luck, Gene E. Utterback, EA, RFC, ABA