How You File Can Affect Your Return
Author: Keith Huggett
If you are married, file your taxes under the "Married Filing Jointly" status and either you or your spouse is self-employed, your tax planning can get complicated. Unlike couples who pay income and FICA taxes through withholding, you have to deal with making your own estimated tax payment for both income and self-employment tax on your business income, regardless of what you pay yourself out of your business.
Self-employed people have two key differences in how they pay their taxes. The first is that they have to pay both the employee and employer portions of Medicare and Social Security contributions as self-employment tax. The second is that, since they do not have anyone to withhold taxes from their income, they have to take the initiative to make quarterly estimated tax payments to the IRS so the government gets its money on time.
There are two key tax-planning rules to remember when you are married and filing jointly, and have a mix of employment and self-employment income:
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You only pay self-employment tax on self-employment income.
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The IRS doesn't care how they get your money -- they just care that they get it on time.
The first rule is important because it means that you will not have to pay self-employment tax on everything -- just on the portion of your combined income that comes from your business. The second rule brings up an interesting tax-planning strategy. If you do not want to make estimated tax payments, you can have your spouse adjust his or her withholding upwards so that the equivalent of your quarterly payments gets taken out of his or her paycheck.
Projecting your income and correctly setting up your withholding or your estimated tax payments can be a complicated process. Furthermore, if you estimate incorrectly, you could be liable for IRS penalties. Contact the tax professionals at The Tax Office, Inc. to get help determining the best strategy for you and your spouse.
