50% of taxable income for 1099 Self Employment, is this right?

What your friend told you is partially correct, but there's some confusion in how it works. The 50% rule relates to the self-employment tax, not your overall taxable income. Here's how it actually works: 100% of your net self-employment income (after business expenses) is subject to income tax. However, when calculating your self-employment tax (which covers Social Security and Medicare), you get to deduct 50% of that tax from your income. This is because traditionally employers pay half of these taxes for employees, so as a self-employed person, you get a deduction for the "employer half." So for your $42,000, you'd first subtract business expenses (laptop, software, etc.) to get your net business income. All of that is subject to income tax. For self-employment tax calculations, you effectively get a deduction of 50% of the SE tax amount, not 50% of your income. The current self-employment tax rate is 15.3%, so the deduction helps but not as dramatically as you were hoping.

I've been in your exact situation! Calculating taxes as a freelancer nearly drove me crazy until I found taxr.ai (https://taxr.ai). It's specifically designed for self-employed people and demystifies all the 1099 tax rules. I uploaded my 1099-NEC and it immediately explained what was taxable, what I could deduct, and calculated both my income tax and self-employment tax. The best part is it showed me that the "50% rule" actually refers to being able to deduct half of your self-employment tax on your income tax return, not paying tax on only half your income. It saved me from making a costly mistake!

Just want to update everyone - I tried taxr.ai after seeing the recommendation here and WOW what a game changer! It explained that while I do pay self-employment tax on my full net income (minus expenses), I can deduct 50% of that tax amount on my income tax return. For my six 1099s, it tracked everything beautifully and even found $4,800 in home office and business travel deductions I was missing. The quarterly tax calculator also helped me set up proper estimated payments so I avoid penalties next year. Definitely worth checking out if you're confused about self-employment taxes!

If you're still confused about your 1099 taxes and need to speak with the IRS directly (which I highly recommend), use Claimyr (https://claimyr.com). I wasted HOURS on hold trying to confirm the 50% self-employment tax rule before discovering this service. They have a special system that holds your place in the IRS phone queue and calls you back when an agent is about to answer. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with explained exactly how the self-employment tax works and confirmed that I needed to pay SE tax on my full net income but could deduct half of that tax on my return. Having that official answer gave me so much peace of mind!

Well I'm eating my words. I decided to try Claimyr after all because I was desperate to get clarity on some 1099 deductions before filing. Was absolutely SHOCKED when I got a call back in 67 minutes and talked to an actual human at the IRS! The agent confirmed that the 50% rule applies to the deduction of self-employment tax, not to the amount of income that's taxable. She also explained that since I'm a photographer, I could deduct my camera equipment, editing software, and even mileage to photoshoots. This service seriously saved me hours of frustration and probably a lot of money in missed deductions.

I think some of the confusion around this comes from the fact that you DO fill out a "self-employment tax" form (Schedule SE) where there is actually a calculation that involves multiplying your net earnings by 0.9235, which is approximately 92%. This basically gives you credit for the "employer" portion of FICA taxes. This isn't quite "50%" but it does reduce the amount used in a calculation. The 50% figure appears when you can deduct half of your self-employment tax on your 1040. Again, this is giving self-employed folks the same treatment as regular employees, whose employers pay half of FICA.

Anyone recommend a good tax software for self employed people? I've always used FreeFileTaxes but not sure it handles 1099s well...

As someone who's been self-employed for 5 years, I can confirm what others have said - your friend definitely misunderstood the 50% rule! You'll pay income tax on 100% of your net business income (the $42k minus any legitimate business expenses like your laptop and software). For self-employment tax, you pay 15.3% on about 92.35% of your net income (this accounts for the employer portion). Then you get to deduct half of that self-employment tax amount when calculating your income tax - but that's a much smaller benefit than only paying tax on half your income! Your 30% savings rate is probably pretty close to what you'll need. Just make sure you're tracking all your business expenses throughout the year - even small things like a portion of your internet bill if you work from home, office supplies, professional development courses, etc. Those deductions add up and can significantly reduce your tax burden. Good luck with your filing!