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So I had to file my taxes this year, and I discovered a few cool things that I'd been unsure about before. Figured I'd share them in case anyone else is similarly mistaken.

1. Self Employment tax is 15% of NET earnings, not Gross. (You deduct all business expenses before applying the tax.)

2. Business deductions are not the same as standard deduction. You are able to take BOTH business deductions AND the 12,000 standard deduction.

3. You are able to deduct half of your Self Employment Tax from your Federal tax, which, essentially matches the 7.5% that everyone else has to pay anyway for MC and SS. Basically, the complaints that self employed folks pay a bunch of extra taxes isn't actually accurate.

4. You may run into issues if you don't supply cover artists/editors/PAs etc... (Anyone you pay over 600 to) with a 1099. It might not be an issue, since you have different ways to deduct business spending, but some accountants prefer this and may hassle you about it--though it's not a huge issue, or at least hasn't been for me yet.

5. There are tax breaks for people who pay self-employment tax which I still can't even begin to understand. Turbo Tax applied it for me, but yeah--I went into it thinking I would have to pay nearly 10 times as much as I ended up having to pay. A really, really nice surprise.

(Highly recommend using an accountant or Turbo Tax or someone knowledgeable if you're ignorant about taxes--as I am.
 

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Great points. You just have to remember when it comes to self-employment tax you're both self and employer.

I've used Turbo Tax ever since I gave up using Quattro Pro. Never had a problem that wasn't GIGO.


 

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josephdaniel said:
4. You may run into issues if you don't supply cover artists/editors/PAs etc... (Anyone you pay over 600 to) with a 1099. It might not be an issue, since you have different ways to deduct business spending, but some accountants prefer this and may hassle you about it--though it's not a huge issue, or at least hasn't been for me yet.
If you pay any of those contractors through PayPal or another credit processing system, you SHOULD NOT issue them a form 1099-MISC: https://smallbiztrends.com/2015/01/1099-contractors-paypal-credit-card.html
 

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This is complicated: "3. You are able to deduct half of your Self Employment Tax from your Federal tax, which, essentially matches the 7.5% that everyone else has to pay anyway for MC and SS. Basically, the complaints that self employed folks pay a bunch of extra taxes isn't actually accurate."

You deduct it from your INCOME, not from your tax. So, if you have a 25% tax rate (forget what the rates are these days), then you're saving 25% of the half of the self-employment tax, NOT 100% of it.

In other words, if the SE tax is $200, and you then deduct $100 from your income, then at a 25% tax rate, you'll reduce your income tax by $25, not the full $100. Or whatever your tax rate is, multiply that times the half of your self-employment tax, and that's how much you've reduced your income taxes by.

Deductions are NOT the same as tax credits. Credits are subtracted from the tax due. Deductions are subtracted from the income on which the tax is calculated.

Not giving individual tax advice here, just general information.
 

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GinJones said:
This is complicated: "3. You are able to deduct half of your Self Employment Tax from your Federal tax, which, essentially matches the 7.5% that everyone else has to pay anyway for MC and SS. Basically, the complaints that self employed folks pay a bunch of extra taxes isn't actually accurate."

You deduct it from your INCOME, not from your tax. So, if you have a 25% tax rate (forget what the rates are these days), then you're saving 25% of the half of the self-employment tax, NOT 100% of it.

In other words, if the SE tax is $200, and you then deduct $100 from your income, then at a 25% tax rate, you'll reduce your income tax by $25, not the full $100. Or whatever your tax rate is, multiply that times the half of your self-employment tax, and that's how much you've reduced your income taxes by.

Deductions are NOT the same as tax credits. Credits are subtracted from the tax due. Deductions are subtracted from the income on which the tax is calculated.

Not giving individual tax advice here, just general information.
Thanks for the info. Definitely wish I was more educated on tax, but thanks be to the mighty internet having bequeathed: TurboTax.
 

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> Self Employment tax is 15%

Something wrong there! There's no such thing as "self employment tax." You are taxed at your marginal tax rate, with can be anything from zero to near 40 percent.

As others have pointed out (I think), FICA tax is roughly 12 percent, with half that credited back to you on form 1040 as a deduction from income. You also get to deduct self-employment health insurance, which for many of us effectively wipes out our self-employment income.

New last year was a 20 percent deduction in an effort to bring self-employment income on a par with corporate income taxes. For me, that netted nothing because the health insurance deduction got there first.

I have always used TurboTax Basic because I like to work directly with the forms, and Basic has all forms, though Intuit would like you to think differently. This year however I spent $50 for "Deluxe" because it includes state tax form. It's well worth the extra $20 to have that filled out automagically (more or less).

If any of you had "issue" who were hit by the Kiddie Tax as obscenely expanded in the 2017 tax law, be aware that the law was changed in 2019. TurboTax hasn't yet amended the 2018 or 2019 software to enable us to recoup some or all of that money, but promises to do so "soon". I plan to file for an extension for the Kiddies, so they can file in September. I'll file as usual on April 1. I figure that's a great time to slip it in, beneath the deluge that's coming from the procrastinators. I had a pal who used to start his tax return on April 15, finish in the early hours of the 16th, then drive to the nearby small city where he worked, where he'd reset the postage meter to the 15th and put it in the outgoing mail.
 

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notjohn said:
> Self Employment tax is 15%

Something wrong there! There's no such thing as "self employment tax." You are taxed at your marginal tax rate, with can be anything from zero to near 40 percent.

As others have pointed out (I think), FICA tax is roughly 12 percent, with half that credited back to you on form 1040 as a deduction from income. You also get to deduct self-employment health insurance, which for many of us effectively wipes out our self-employment income.

New last year was a 20 percent deduction in an effort to bring self-employment income on a par with corporate income taxes. For me, that netted nothing because the health insurance deduction got there first.

I have always used TurboTax Basic because I like to work directly with the forms, and Basic has all forms, though Intuit would like you to think differently. This year however I spent $50 for "Deluxe" because it includes state tax form. It's well worth the extra $20 to have that filled out automagically (more or less).

If any of you had "issue" who were hit by the Kiddie Tax as obscenely expanded in the 2017 tax law, be aware that the law was changed in 2019. TurboTax hasn't yet amended the 2018 or 2019 software to enable us to recoup some or all of that money, but promises to do so "soon". I plan to file for an extension for the Kiddies, so they can file in September. I'll file as usual on April 1. I figure that's a great time to slip it in, beneath the deluge that's coming from the procrastinators. I had a pal who used to start his tax return on April 15, finish in the early hours of the 16th, then drive to the nearby small city where he worked, where he'd reset the postage meter to the 15th and put it in the outgoing mail.
So, to begin with, I am a pubic accountant. And I say, with all due respect, the idea that there is no "self employment tax" is laughable. As a self employed individual, you are responsible for both employer and employee taxes. The current rate (for the 2019 tax year) is 12.4% for social security and 2.9% for medicare. This 15.3% total make up the FICA taxes. You are responsible for paying the ENTIRE AMOUNT, however, you receive an above the line credit of 50%. This is based on your SE gains and is IN ADDITION to, not included as, your nominal tax rate (look at 1040 line 15. Your nominal tax rate is calculated before that on line 12a)
 
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