Get Up-to-Speed With Taking Care of Your Taxes Online Course
We know it is critical to be current on tax reporting options and procedures. Whether you fill out your own taxes or utilize the services of a professional, this course will guide you through the process.
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Know the Rules About Paying Taxes
Massage therapists can get into trouble if they do not understand the rules about paying taxes. As a business professional, it is your responsibility to understand how to calculate how much you owe in taxes, what expenses are allowable as deductions and when your taxes are due. A massage therapist's best friend can be a professional tax advisor.
If You Are an Employee
If you are employed, your employer withholds taxes for you, and you do not have to file quarterly estimated tax. Your employer gives you a W-2 form that shows how much income you have been paid for the year and how much money was withheld for state, federal, Medicare and FICA (Social Security). If you itemize your deductions, you might be eligible to deduct business expenses you incurred that your employer did not reimburse you for, such as professional association dues, massage lotions and accessories, massage-related magazine subscriptions and continuing education, to name a few.
If You Are Self-Employed
If you earn more than $400 a year, you are required to pay federal, state, Medicare and self-employment tax. You must also file and pay quarterly estimated taxes in April, June, September and January. As a general rule, Internal Revenue Service (IRS) regulations require that you pay at least 90 percent of the amount due for that quarter or 100 percent of the amount you paid for that quarter in the previous year. If you do not pay quarterly taxes on time and in the amount required, you will owe a penalty when you file your annual return.
The facility that pays you does not withhold taxes for you if you are an independent contractor, so taxes are your responsibility. Please note that having a contract is not enough to ensure that you are considered an independent contractor.
Find more information at IRS.gov
FICA vs. Self-Employment Tax
When you're an employee, your employer takes out half what you owe for Social Security from your paycheck, and your employer pays the other half. If self-employed, you pay the entire amount. The intention is that this amount should fund your Social Security account for your later retirement benefits. In addition to self-employment tax at the federal level, some states also apply a surcharge to self-employed individuals.
Report All Tips
Keep track of all income, including tips—don't not assume you don't need to report tips.
The end of the year is a good time to assess whether you can reduce your tax liability by "spending down" the profits of your business. If there are charitable donations to qualified nonprofit organizations or business expenses you might have been holding off on during the year, year-end is a good time to make them because they might be eligible as tax deductions.