What’s the deal with self-employment tax?

You hear about self-employment tax and worry it will wipe out your profits. It is confusing to know how much to set aside.

The IRS generally requires individuals to report all income earned from business activities, regardless of the amount. While certain thresholds (like the $600 1099-K limit) trigger automatic reporting from payment processors to the IRS, they do not necessarily define a vendor's individual tax liability. Additionally, while business expenses and reinvestments may reduce taxable profit, they do not automatically eliminate tax obligations. It is important to consult IRS Publication 334 (Tax Guide for Small Business) or a CPA to understand how self-employment taxes and income reporting apply to your situation.

Track your net profit each quarter and set aside a percentage for self-employment tax. Use tax software or a professional to estimate accurately. Planning ahead makes it manageable.