Moving from Employee to Self-Employed? Here’s what it means to your taxes.

by Mounica Kota | Nov 12, 2020 | Employee management, self employment tax

Moving from Employee to Self-Employed?

Here’s what it means to your taxes.

If you had some hobbies or areas of interest and that has turned into your side business now, then it would be an advantage for you. You would be able to make some additional income; however, you would have to think about the taxes related to the additional income earned.

You must be very well aware of your federal income taxes but you have new areas to address once you are self-employed. According to the IRS rules, you would have to report to the IRS about the expenses and the income earned from your business or self-employment. This needs to be done while filing your federal income tax returns. This process of reporting the income and expenses associated with self-employment is not very critical and can be done easily once you are aware of the steps.

Quarterly Estimated Tax Payments.

While you are an employee, your employer would be deducting withholding taxes from your salary every year. But, when you are self-employed you would have to make estimated tax payments every quarter. The general rule is that you would be expected to make a quarterly estimated tax payment if you are liable to pay $1000 or more as your annual federal tax. In case, you have a new business then an estimate of your net profit must be estimated to calculate your quarterly estimated tax. You can make use of various tools and online applications to calculate the estimated tax payments. Some of the applications can automatically calculate the estimated tax payments that need to be paid off.

The schedule for the payment of the Quarterly Estimated Tax Payments is:-

15^th April
15^th June
15^th September
15^th January of the next year

However, this year due to the COVID-19 related situations the schedule for the payment of the first and second estimated tax payment had been extended until 15^th July 2020. If the 15^th of the above-mentioned schedule falls on a weekend or it is a holiday, then the estimated tax payment would be made on the upcoming weekday.

Filing of the quarterly estimated tax payments or can be done by the e-filing method. Payment of your quarterly estimated tax can be done by the EFTPS (Electronic Federal Tax Payment System).

In case, you have been an employee and also owned a business during the year then you can have more amount taken from your salary so that there would be an offset in the estimated tax payment. Moreover, you must keep in mind that there are some tax credits available according to the provisions of the CARES Act. These credits have been introduced as a measure for providing relief from the adverse economic impacts caused by the pandemic COVID-19. These credits can be taken into consideration for reducing your fourth estimated tax payment.

Self-Employment Tax Calculation.

The self-employment taxes are paid by self-employed individuals for Social Security and Medical care. When you were working for an employer, you were paying FICA tax that was 7.65% of your gross income. Your employer would pay a matching percentage i.e. a total of 15.3%. But, in self-employment, you would have to pay a total of 15.3% as the self-employment tax. IRS would allow you to deduct half of your tax levied on self-employment against the income generated for federal income tax.

Income Tracking and Expenses.

For estimating your self-employment tax, you must track your income and expenses thoroughly.

Your retirement plan.

When you are self-employed, you would not have a retirement plan offered by the employer. So, you would have to save a considerable amount for your retirement.

Individual Retirement Account (IRA) – The simplest method of setting up a retirement plan if you are a self-employed individual and have a new business.
SEP IRA – You can contribute 25% of your net income earned from your business up to a maximum amount of $57,000.
401(K) plan – This retirement plan is meant for an individual and can also include your spouse.

Your health insurance.

If you are a self-employed individual, you would have the below-mentioned options for health insurance coverage.

Your previous employer’s plan will give you coverage for 18 months.
If your spouse has a medical insurance plan offered by his employer, then you can obtain coverage under that plan.
Purchase a health insurance plan from the health insurance marketplace.

Conclusion.

So, self-employment can help you in bringing additional considerations related to taxes. You can also make some planning for your retirement and provide coverage for health insurance.

Survival business strategies for an NRI in the US during the pandemic

by Mounica Kota | Aug 17, 2020 | COVID 19, Employee management, entrepreneurs, NRI business

Survival business strategies for an NRI in the US during the pandemic

The pandemic COVID-19 has caused a major impact on businesses across the country. The Government has been urging the Americans to stay indoors to control the further spread of the pandemic; however, the productivity and the economy have been affected.

Businesses are finding it difficult to maintain their workflow and financial stability during these challenging times. The NRI businessmen and entrepreneurs in the US are facing a lot of challenges due to lower revenues and profits. Be it an established business, a start-up or a small business reconsideration of business strategies is the only way for business survival in the country during current times.

So, let us talk about some of the strategies that NRI businessmen in the US can implement for their business survival.

a.Secure liquidity

One of the major challenges which are being faced by businesses currently is access to cash. In these challenging times, overhead costs like payroll, rent, and utilities leave very meager cash with the owners. In addition to these, lack of revenue from services that are slowing down is making the entrepreneurs distressed.

NRI business owners must take up efforts to provide immediate liquidity and keep the business solvent. Government organizations like the “Small Business Workforce Stabilization Fund” would help in providing financial assistance to those who are facing a financial crisis due to the pandemic. This program can also provide immediate cash flow to the vulnerable businesses by keeping their employees on payroll and allowing the business to grow after the customers return.

b.Planning in advance

It is difficult to estimate by when this pandemic would pass; so to be prepared with a plan would be beneficial for business. NRI businessmen can make a plan for 3-18 months depending on the nature of the business and the estimated time needed for the things to be normal. The businesses can immediately stop certain flexible expenses such as hiring, travel, and marketing expenses. Strategies should be made to focus only on essentials such as sales, renegotiation of fixed expenses such as rent, salaries, etc. Businesses must consider a revision of their revenue goals and timelines of manufacturing along with the creation of a new operating plan.

c.Employee management

For those businesses which have to think about making decisions such as employee layoffs, the most suitable option could be to reduce salaries of the highly paid employees and to retain those employees who cannot afford to lose their job. The Federal Government has also formulated a relief plan which would help small scale businesses in affording their payroll and cover expenses easily such as paid sick leave, loan repayment, and paid FMLA. It is advisable to carry out employee management according to the Government directives and businesses must also try to offer extra compensation to their employees whenever necessary.

Moreover, the employee s must be engaged during these times and the productivity should be maintained. The entrepreneurs must guide the employees and should try to help those employees who are facing any kind of mental issues. The morale within the employees must be kept high and this is feasible by being connected with them digitally through various applications like Zoom, Skype, etc.

d.Turn digitization into an advantage

The major challenge of this pandemic for businesses is not only to sustain their productivity by the digitized operations but also to focus on the plethora of new opportunities that have come up for the workforce through digitalization. Digitalization can be considered as a catalyst that would help in changing the business model creatively. Transferrable manpower and increased productivity of remote working would be beneficial for businesses.

e.Maintaining transparency and keeping stakeholders informed

Customers are the ones who keep the business running and without customers, a business would not be able to flourish. Since, the pandemic COVID-19 has created a crucial issue which we all are facing together and so, staying transparent with the customers and keeping them updated about the situation is necessary. If the business is communicating clearly with the customers it would help the customers to be more empathetic and understanding.

Moreover, stakeholders also play an important role in the success of a business. The NRI businessmen must seek business advice from their investors or from other external experts to make plans and strategies. It is necessary to discuss the impact of the current situation on the business with the stakeholders.

Conclusion

Hence, during these distressful times, it is necessary to stand by each other and provide assurance to each other. These tips mentioned above would be helpful in keeping business functional and intact during these times of pandemic.