Self Employment Taxes

[Bassmaster96]

I'm trying to get a better handle on self employment taxes and how they work. Let's say if after deductions you have a taxable income of $75,000. So, if you are single, then the first $9,950 is taxed at 10%, then $9,951-$40,525 is 12% and $40,526-$75,000 is at 22%? So total fed tax is like $12,248.16? Do the brackets include social security on their own or is that separate? If this bracket case is correct, then what cases would you need a large tax write off at the end of the year? For some reason I used to think it was to drop a bracket because I thought that each bracket had to pay that percent on all income, so like $75K taxable would all be counted at 22% so you would owe $16,500 in taxes or if you were closer to the bracket, say $50,000 taxable, then you could spend $10,000 on applicable writeoffs to drop to the 12% bracket and stay out of the 22% bracket.

Anyone have a good grip on how all of this works?

[WisconsinF]

You will need to send in 15.3% for social security/medicare. ($11,475.00 on a $75,000.00 income)
This is not included in your "income" tax.
I think up to $132,900.00 of income

[Bassmaster96]

You will need to send in 15.3% for social security/medicare. ($11,475.00 on a $75,000.00 income)
This is not included in your "income" tax.
I think up to $132,900.00 of income

I was afraid of that

[boneil]

You need a certified tax professional, a CPA???? I think

Of course my dad had a CPA who screwed up royally and had a massive tax bill at the end of the year. Good luck

[Bassmaster96]

You need a certified tax professional, a CPA???? I think

Of course my dad had a CPA who screwed up royally and had a massive tax bill at the end of the year. Good luck

Yeah I have one but access to good ones for the questions I want answered seems to be thin unfortunately. I just mainly want to know everything I can do to pay in less taxes at the end of the year ya know. Seems like you're always stuck fending for yourself when it comes to protecting your income a lot of the time. Unfortunate

[boneil]

Could you not use something like Turbo Tax?

[BarryFL]

There are numerous other expenses beyond federal income tax and SS/Med that may be required dependent on your state's income taxes. Workman's Comp Ins is one that an employer pays that most don't think about when starting their own business or going 1099.

[Bassmaster96]

Could you not use something like Turbo Tax?

Maybe, I need to look at that

[Bassmaster96]

There are numerous other expenses beyond federal income tax and SS/Med that may be required dependent on your state's income taxes. Workman's Comp Ins is one that an employer pays that most don't think about when starting their own business or going 1099.

Yeah, I got a pretty good answer on the state taxes from the tax woman so that was good. My main question now is why do people need big writeoffs at the end of the year? Is that just an overdone excuse for lowering taxes overall so you can blow some money? I mean true, they pay in less in taxes, but if you have to blow a whole bunch of money the math just doesn't make sense. I've got to be missing something

[idbefishing]

Aren’t your business expenses get deducted from your gross income therefore lower your AGI = lower taxes?

[Bassmaster96]

Aren’t your business expenses get deducted from your gross income therefore lower your AGI = lower taxes?

Yes, but, it seems to me like you would be money ahead to just pay the taxes on it instead of blowing the money just to have writeoffs. Hard to say, may be just a personal preference thing for when people want to spend money.

[TomP.]

Yes, but, it seems to me like you would be money ahead to just pay the taxes on it instead of blowing the money just to have writeoffs. Hard to say, may be just a personal preference thing for when people want to spend money.

I have seen way to many farmers get into trouble this way spending money to lower there tax burden, they seem to forget they still have to pay for that purchase. I farm and also have a business and have never gone down that road, as much as I hate to pay taxes i will do that over digging a whole for myself. Still have to remember each tax payer is in a different boat so some it makes sense sometimes it does not. I know one year I owed a ton of taxes bit the bullet and payed them while a neighbor purchased his way out of higher taxes needless to say his home farm got sold a few years down the road as the debt caught up to him.

[JohnN]

I have seen way to many farmers get into trouble this way spending money to lower there tax burden, they seem to forget they still have to pay for that purchase. I farm and also have a business and have never gone down that road, as much as I hate to pay taxes i will do that over digging a whole for myself. Still have to remember each tax payer is in a different boat so some it makes sense sometimes it does not. I know one year I owed a ton of taxes bit the bullet and payed them while a neighbor purchased his way out of higher taxes needless to say his home farm got sold a few years down the road as the debt caught up to him.

Exactly. Buying something because you "need" a tax write-off makes no sense because you'll have less in your pocket afterwards than you had before the transaction. It only makes sense if you: a) need the thing you are buying but are just buying it sooner; or 2) you want the thing you're buying and like the feeling of getting a "discount" by reducing your tax burden (because you'll still have less in your pocket after the transaction).

[Bassmaster96]

Exactly. Buying something because you "need" a tax write-off makes no sense because you'll have less in your pocket afterwards than you had before the transaction. It only makes sense if you: a) need the thing you are buying but are just buying it sooner; or 2) you want the thing you're buying and like the feeling of getting a "discount" by reducing your tax burden (because you'll still have less in your pocket after the transaction).

Okay that's what I was thinking. It makes sense if you need/want it, but if you don't need/want anything you'd be better off to pay the taxes

[Roddy]

Yes, but, it seems to me like you would be money ahead to just pay the taxes on it instead of blowing the money just to have writeoffs. Hard to say, may be just a personal preference thing for when people want to spend money.

Before I retired, I got a new truck for my business every time the old one was deprecated out. Might as well drive a nice truck if nearly half it’s cost is in income tax reduction.

[digthemup]

I'm trying to get a better handle on self employment taxes and how they work. Let's say if after deductions you have a taxable income of $75,000. So, if you are single, then the first $9,950 is taxed at 10%, then $9,951-$40,525 is 12% and $40,526-$75,000 is at 22%? So total fed tax is like $12,248.16? Do the brackets include social security on their own or is that separate? If this bracket case is correct, then what cases would you need a large tax write off at the end of the year? For some reason I used to think it was to drop a bracket because I thought that each bracket had to pay that percent on all income, so like $75K taxable would all be counted at 22% so you would owe $16,500 in taxes or if you were closer to the bracket, say $50,000 taxable, then you could spend $10,000 on applicable writeoffs to drop to the 12% bracket and stay out of the 22% bracket.

Anyone have a good grip on how all of this works?

In all the yrs that I was in business as an LLC, I got a very good CPA and attorney that handled all the business affairs. I know that there is many things outhere these days telling you otherwise, but for the peace of mind and reduction in personal liability, it made the money paid to them well spent.

[Doorman1]

The only way to avoid paying taxes on profits is to defer them. Max out your IRA contributions but you will still have to pay both sides of the Social security. Are you not paying yourself a wage if you are then you need to be paying your federal, social security and state taxes at least quarterly. I actually pay mine every month. Any business profit should be reported on and I can't remember the form number and will count as personal income even if you don't take it out of the business. You will not pay social security on that amount. The funds you pay taxes on but leave in the business is called retained earnings which can be taken from the business at anytime without paying additional taxes. I currently have over 100K in retained earnings that I use a capital to run my business. When I retire and sell my company I will take it all out of the business at that time.

[Bassmaster96]

The only way to avoid paying taxes on profits is to defer them. Max out your IRA contributions but you will still have to pay both sides of the Social security. Are you not paying yourself a wage if you are then you need to be paying your federal, social security and state taxes at least quarterly. I actually pay mine every month. Any business profit should be reported on and I can't remember the form number and will count as personal income even if you don't take it out of the business. You will not pay social security on that amount. The funds you pay taxes on but leave in the business is called retained earnings which can be taken from the business at anytime without paying additional taxes. I currently have over 100K in retained earnings that I use a capital to run my business. When I retire and sell my company I will take it all out of the business at that time.

Yeah I pay quarterly. Do you have/need an LLC or something similar to do that retained earnings thing?

[Doorman1]

Yeah I pay quarterly. Do you have/need an LLC or something similar to do that retained earnings thing?

I'm a S-Corp I think LLC's are reported differently. As a S-Corp you will be assigned a Federal tax ID