One of the difficulties that can arise from being self-employed is figuring out how to handle taxes. Understanding the tax law is obviously something most people would rather not get involved with, due to the sheer complexity of the tax code. As a handyman working for you, there are a few things to know about your tax situation, and if you have employees, there are a number of other things you may want to consider.
First of all, if you are self-employed, no one else withholds taxes from your paycheck each week. Because of this, the IRS requires you to do it yourself, in the form of “estimated taxes.” Estimated taxes are generally paid quarterly, but are done on a somewhat odd schedule. Estimated taxes are paid using an IRS Form 1040-ES, and these tax payments are due on April 15, July 15, September 15, and January 15 of the following year. Failure to make these payments can result in severe penalties, which can exceed 45% of the tax amount, not to mention the interest charges that accrue daily.
The second thing you might have to worry about is payroll taxes. When you have employees, you must withhold income taxes from your employees’ paychecks, as well as Social Security and Medicare taxes. On top of that, you must match the employee’s Social Security and Medicare withholding out of your own pocket. These taxes are in addition to state tax withholdings, unemployment taxes, and perhaps even local taxes, depending on where you do business. The IRS requires you to file a quarterly tax return, Form 941, and actually deposit these taxes with the US Treasury on a quarterly, monthly, or even weekly basis, depending on how high your payroll is. Again, not paying these taxes when due or not filing tax returns on time can result in incredibly high penalties and interest charges, which can sometimes double the amount you owe.
If you have been in trouble with the IRS due to these types of tax problems and are facing tax debt with increasing penalties and interest, then there are things that can be done to protect your assets and bank accounts from being confiscated by the IRS. But you must be proactive in taking the necessary steps.
If you fall behind on payroll taxes or self-employment taxes, it’s important to understand that these particular types of taxes represent the most important area of application for the entire IRS. These taxes are what the federal government relies on to fund daily operations throughout the year, so they are very serious about going after people who don’t pay them.
However, with that said, keep in mind that the IRS is not completely evil and will work with you to catch up. But as I mentioned earlier, you have to be proactive about it.