Self Employment Income
If you are self employed, or earning money through a side hustle or freelance gig, you may be wondering how to account for this in your Plan.
Typically, a Sole Proprietor computes net self employment income on Schedule C of IRS Form 1040. The process entails entering gross income from self employment and subtracting business expenses. When calculating your net income from self employment for the Planner, you may follow the same process and include your self employment income in the Work section of Income.
The Planner will apply FICA (6.2% for Social Security and 1.45% for Medicare, for a total of 7.65% of income) to any income entered in this section of the plan.
There is a cap to the Social Security tax and an additional Medicare tax at certain income levels. Those are beyond the scope of this article.
Follow these steps to account for Self Employment Income:
STEP 1: Head over to My Plan > Income > Work
STEP 2: Press Add a Job +
STEP 3: Give the income a descriptive name, "Door Dash," for example
STEP 4: Enter the net income received from self employment
STEP 5: Enter the start and stop dates
STEP 6: Enter the optimistic and pessimistic growth rates
STEP 7: Press Save
Follow these steps if you wish to adjust for Self Employment Tax:
Many self employed individuals are subject to self employment taxes. These are 15.30% of self employment income. And, 50% of the self employment tax is deductible from your taxable income.
There will be a tax differential in your plan due to the self employment tax. To account for any differential, you may wish to include an expense in the recurring expenses section of your Plan.
STEP 1: Head over to My Plan > Expenses > Recurring Expenses
STEP 2: Calculate the expense differential you wish to account for
STEP 3: Press Add an Expense +
STEP 4 Give the expense a descriptive name, "Self Employment tax," for example
STEP 5: Enter the monthly amount
STEP 6: Enter the same start and stop dates as the Self Employment Income
STEP 7: Press save
An alternative would be to enter the income as Passive Income or a Pension. Those areas are not subject to FICA.