Being self-employed in Michigan comes with a lot of freedom, but it also brings the responsibility of handling your own taxes. Unlike traditional employees, self-employed individuals must manage their own tax payments, which can be a daunting task. Understanding the ins and outs of Michigan self-employed taxes is crucial to ensure compliance and avoid any penalties. This guide will walk you through everything you need to know about managing your taxes as a self-employed individual in Michigan.
Self-employed taxes are the taxes that individuals who work for themselves must pay. These taxes include both income tax and self-employment tax. The self-employment tax is essentially the Social Security and Medicare taxes that are typically withheld from employees' paychecks by their employers. As a self-employed person, you are responsible for paying both the employer and employee portions of these taxes.
In Michigan, self-employed individuals must also pay state income taxes. The state income tax rate is a flat rate, meaning it does not change based on income level. This rate is applied to your taxable income after accounting for any deductions or credits you may qualify for.
Understanding the different components of self-employed taxes can help you better prepare for tax season and ensure you are setting aside enough money throughout the year to cover your tax obligations.
The first step in calculating your self-employed taxes is determining your net income. Net income is your total income from self-employment minus any business expenses you can deduct. Common deductions include office supplies, travel expenses, and a portion of your home office if you work from home. Keeping accurate records of your income and expenses throughout the year can simplify this process.
Once you have your net income, you can calculate your self-employment tax. The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. To calculate your self-employment tax, multiply your net income by 92.35% to find your taxable income, then apply the 15.3% tax rate to this amount.
In addition to self-employment tax, you must also pay Michigan state income tax. The state income tax rate is 4.25%. To estimate your state income tax, multiply your net income by 4.25%. Remember to account for any state-specific deductions or credits that may reduce your taxable income.
Self-employed individuals are required to make quarterly estimated tax payments to both the IRS and the state of Michigan. These payments help you avoid underpayment penalties and ensure you are paying your taxes throughout the year. To calculate your quarterly payments, estimate your total tax liability for the year and divide it by four. Keep in mind that if your income fluctuates, you may need to adjust your payments accordingly.
At the end of the year, you must file an annual tax return. For federal taxes, this involves completing Schedule C (Profit or Loss from Business) and attaching it to your Form 1040. Schedule C is where you report your income and expenses. For Michigan state taxes, you will file a Michigan Individual Income Tax Return (Form MI-1040). Make sure to include all necessary schedules and forms to accurately report your income and deductions.
Maintaining thorough records is essential for self-employed individuals. Keep track of all income received and expenses incurred throughout the year. This includes receipts, invoices, and any other documentation that supports your income and deductions. Good record-keeping not only helps you accurately file your taxes but also provides evidence in case of an audit.
Business mileage is one of the most valuable and commonly used deductions for self-employed individuals and independent contractors. The IRS allows you to deduct the miles you drive for work-related purposes, including client meetings, job sites, and business errands.
For 2025, the mileage reimbursement rate is worth 70 cents in deductions, adding up quickly to significant tax savings. Whether you’re delivering for a gig platform, running a small business, or freelancing, keeping accurate mileage records is key to claiming this deduction. The IRS requires detailed logs of your trips, including dates, destinations, and purposes. Tracking your miles not only helps you reduce your taxable income but also ensures you stay compliant with IRS rules and avoid audit risks. With tools like Everlance, you can automate your mileage tracking and generate IRS-compliant reports, taking the guesswork out of this essential tax deduction.
If you use part of your home exclusively for business purposes, you may qualify for a home office deduction. This deduction allows you to deduct a portion of your mortgage interest, rent, utilities, and other home-related expenses. To qualify, the space must be used regularly and exclusively for business activities.
If you use your vehicle for business purposes, you can deduct related expenses. You can choose between the standard mileage rate or actual expenses method. The standard mileage rate is a set rate per mile driven for business purposes, while the actual expenses method involves calculating the actual costs of operating your vehicle, such as gas, maintenance, and insurance.
Self-employed individuals can deduct health insurance premiums for themselves, their spouses, and dependents. This deduction is available even if you do not itemize deductions on your tax return. However, the deduction cannot exceed your net income from self-employment.
One of the biggest challenges for self-employed individuals is setting aside enough money to cover their tax obligations. A good rule of thumb is to set aside 25-30% of your income for taxes. This ensures you have enough to cover both federal and state taxes, as well as self-employment tax.
Consider using tax software to help manage your finances. These tools can simplify record-keeping, track income and expenses, and even estimate your tax liability. Many programs also integrate with tax software, making it easier to file your taxes at the end of the year.
Managing self-employed taxes in Michigan requires careful planning and organization. By understanding the components of self-employed taxes, keeping accurate records, and taking advantage of available deductions, you can effectively manage your tax obligations. Whether you're new to self-employment or have been running your own business for years, staying informed about tax requirements can help you avoid surprises and ensure compliance with both federal and state tax laws.
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Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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