The annual tax filing deadline is in the rearview mirror, but if you want to reduce your stress for next year's filing, this is actually the perfect time to start thinking about & planning for next year’s taxes. Today we look at a tax that impacts self-employed people called, cleverly enough, Self-Employment Tax. It impacts all sole proprietors, partners in partnerships, LLC members, freelancers, and anyone with a 1099. I'll explain what self-employment tax is, how it gets calculated, what it means when you're both employer & employee, and the impacts of using lots of write-offs to reduce your taxable income.

Key Takeaways:

• Self-employment tax serves the exact same purpose as FICA. It’s not an extra tax on self-employed people; it’s a replacement for the tax that traditionally employed people pay.
• When you’re self-employed, you pay both the employer and employee halves of employment tax. The employer half counts as a deduction for income tax purposes, but you still have to pay it.
• If you’re a sole proprietor, partner in a partnership, LLC member, or freelancer, the only way to reduce self-employment tax is to reduce net profits.
• And finally, while everyone loves saving on the ol’ income tax bill, sometimes writing off a bunch of expenses means less money in your pocket now and less access to Social Security and Medicare benefits later.

Links
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The IRS webpage for Self-Employment Tax
The IRS Tax Withholding Estimator
Blog post: What's Up With Self-Employment Tax?