One of the difficulties that can arise from being a self-employed handyman is figuring out how to handle taxes. Understanding tax law is obviously something most people would rather not get into, due to the shear complexity of the tax code. As a handyman working for yourself there are a few things you should know about your tax situation, and if you have employees there are several other things that you might want to keep in mind.
First of all, if you are self-employed, there’s nobody else withholding taxes from your paycheck ever week. Because of this, the IRS requires that you do so yourself, in the form of “estimated taxes”. Estimated taxes are generally paid on a quarterly basis, but done so on a somewhat odd schedule. Estimated taxes are paid using an IRS Form 1040-ES, and these tax payments are due April 15, July 15, September 15, and January 15 of the following year. Failure to make these payments can result in stiff penalties, which can exceed 45% of the amount of the tax, not to mention interest charges that compound daily.
The second thing that you might have to be concerned with are payroll taxes. When you have employees, you are required to withhold income taxes from your employees paychecks, as well as Social Security and Medicare taxes. On top of that, you have to match the employee’s Social Security and Medicare withholding out of your own pocket. These taxes are in addition to any state withholding taxes, unemployment taxes, and perhaps even local taxes depending on where you do business. The IRS requires that you file a quarterly tax return, Form 941, and actually deposit these taxes to the U.S. Treasury on either a quarterly, monthly, or even weekly basis, depending on how high your payroll is. Again, the failure to pay these taxes when due or promptly file the tax returns when due can result in incredibly large penalties and interest charges, which can sometimes double the amount that you owe.
If you have run into trouble with the IRS because of these types of tax issues, and are facing tax debts with mounting penalties and interest, then there are actually things that can be done to protect your assets and bank accounts from being seized by the IRS, but you must be proactive in taking the necessary steps.
If you do happen to fall behind on payroll taxes or self-employment taxes, it is important for you to understand that these types of taxes in particular represent the single most important enforcement area for the entire IRS. These taxes are what the Federal government relies upon to fund day to day operations throughout the year, so they get pretty serious about chasing down people that don’t pay them.
However, with that said, do bear in mind that the IRS isn’t completely evil, and they will work with you to get caught up. But as I mentioned earlier, you have to be proactive about it.