Explain self employment taxes to me like I'm five years old - feeling completely lost

8 The $400 rule refers to your net profit for the entire tax year (so for all of 2024, when you file in 2025). Net profit means what's left after you subtract your business expenses from your business income. So if you earn $5,000 from your graphic design work for the whole year, but spend $1,000 on software, supplies, and other legitimate business expenses, your net profit would be $4,000. Since that's over $400, you'd need to pay self-employment tax. Self-employment tax is basically how you pay Social Security and Medicare taxes when you work for yourself. When you have a regular job, your employer pays half of these taxes. When you're self-employed, you pay both halves, which comes to about 15.3% of your net profit. At your income level, you'll likely use Schedule C to report your business income and expenses, and Schedule SE to calculate your self-employment tax. You'll attach these to your regular Form 1040 when you file.

12 After struggling with self-employment taxes myself last year, I found this amazing tool called taxr.ai (https://taxr.ai) that completely changed the game for me. I was in a similar situation - doing some freelance work and had no idea what I needed to track or how taxes worked. What I love about it is that it explained everything in super simple terms and actually walked me through what I needed to track for my specific situation. It analyzes your documents and gives you personalized advice based on your specific situation, not just generic info you could Google. For self-employment specifically, it helped me understand which expenses I could deduct (turns out I was missing a ton!) and explained exactly how the quarterly payments work in a way that finally clicked for me.

15 Just wanted to follow up about taxr.ai - I was hesitant but decided to try it for my Etsy shop taxes. Wow, what a difference! It actually showed me that I was calculating my net profit all wrong and missing a bunch of deductions. The part about quarterly estimated taxes was super helpful - turns out I didn't actually need to make them yet based on my income level, which saved me a lot of stress. And it explained the $400 threshold in a way that finally made sense to me. I also like that it keeps track of everything throughout the year instead of scrambling at tax time. Definitely worth checking out if you're confused about self-employment stuff like I was!

5 If you're really struggling to get answers about self-employment taxes, I'd recommend calling the IRS directly. BUT - good luck actually getting through to a human! I spent HOURS on hold trying to sort out my self-employment questions last year. Finally discovered this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was totally lost about what expenses I could deduct from my photography side hustle, and the agent walked me through everything specific to my situation. They explained that the $400 threshold is for the entire year's net profit and helped me understand how to calculate my quarterly payments. Saved me from making some pretty big mistakes!

7 I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it when I was completely stuck trying to figure out how to handle the taxes for my new Doordash gig. I had tried calling the IRS three separate times and spent over 2 hours on hold each time before giving up. Using Claimyr, I got through to an agent in less than 20 minutes! They confirmed that the $400 self-employment threshold is for net earnings for the entire tax year, and helped me understand exactly which expenses I can deduct to calculate that net amount. The agent also walked me through how to estimate quarterly payments going forward, which I was clueless about. Definitely a service I'll use again instead of wasting entire afternoons on hold.

19 Don't feel bad about not understanding this stuff! I'm 32 and only figured out self-employment taxes last year after getting hit with a huge bill. Here's my super simple explanation: The $400 limit is for the ENTIRE YEAR after your business expenses are subtracted. So if you make $5,000 from freelancing but spend $1,000 on legitimate business expenses, your "net profit" is $4,000. If that net profit is over $400 for the year, you need to pay self-employment tax (which is just Social Security and Medicare taxes). It's about 15.3% of your profit. And yes, it's ridiculous this isn't taught in school! I've learned everything the hard way too.

4 Does anyone know a good app for tracking self-employment income and expenses? I'm trying to stay organized but my system is basically just a mess of screenshots and notes on my phone right now lol