Am I paying too much for self employment taxes on my business income? Seems really high.

The confusion here is that you're looking at your total additional tax bill and attributing it all to self-employment tax, but there are actually two separate taxes happening with your business income. First, you have the self-employment tax, which is about 15.3% (12.4% for Social Security and 2.9% for Medicare). This is basically the equivalent of the FICA taxes that get automatically withheld from W-2 paychecks. Second, you also owe regular income tax on that business income, just like you do on your W-2 income. That business income gets added on top of your W-2 income, which likely pushes some of it into a higher tax bracket. When you combine both the SE tax and the regular income tax on that $24,000, getting to around 33% total tax rate isn't unusual at all. Your $55,000 W-2 job already used up your lower tax brackets, so your business income is getting taxed at your highest marginal rate plus the SE tax.

I had almost the exact same situation last year and discovered taxr.ai which helped me figure out where all those taxes were coming from. I was making about $60k from my day job and about $30k from my side business, and couldn't understand why I owed so much in taxes. When I uploaded my documents to https://taxr.ai it broke down exactly how much was self-employment tax vs regular income tax, and identified several deductions I was missing for my business that my tax preparer overlooked. Stuff like home office, mileage, and some business expenses I didn't realize qualified. Ended up saving almost $2000 after redoing my return! The system explained that my side income was getting taxed at my highest marginal rate PLUS the self-employment tax, which is why it felt so high. Super helpful to see it all laid out clearly.

Just wanted to update - I tried taxr.ai after seeing the recommendation here and it was actually really helpful! I've been paying way too much in self-employment taxes for years because I wasn't tracking business expenses properly. It showed me that I could deduct part of my internet, phone, and even some equipment I bought for my photography business that I didn't realize qualified. The AI explained everything in a way that made sense, and I'm looking at saving about $1,800 on this year's taxes. The breakdown of self-employment taxes vs. regular income tax was super clear too - I finally understand why that side income gets hit so hard. Definitely recommend for anyone with self-employment income!

If you're worried about owing a lot in self-employment taxes, you might want to check out Claimyr if you need to talk to an actual IRS agent about payment plans or any confusion. I tried calling the IRS directly about my self-employment tax questions last month and literally couldn't get through after trying for days. Found https://claimyr.com and they got me connected to an IRS agent in about 20 minutes! They have this cool demo video showing how it works here: https://youtu.be/_kiP6q8DX5c I was able to set up a payment plan for the $6,200 I owed on my self-employment income and got confirmation that I was calculating my quarterly payments correctly going forward. Saved me tons of stress trying to guess if I was doing things right.

Ok I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was so frustrated with trying to reach the IRS about my partnership tax questions that I decided to try it. It actually worked exactly as advertised - I got a call back in about 35 minutes telling me I was about to be connected with an IRS agent. The agent helped me understand why my self-employment taxes were calculated correctly and explained how estimated payments work going forward so I don't get hit with such a big bill next year. I'm still paying way too much in taxes (ugh), but at least now I understand why and how to better plan for it. Saved me days of frustration trying to get through on my own. Worth every penny just for the time saved.

Another thing you might want to consider is forming an S-Corp instead of operating as a partnership. I switched last year and it's saving me thousands in self-employment taxes. With an S-Corp, you pay yourself a "reasonable salary" which is subject to FICA taxes (like self-employment tax), but then you can take the rest as distributions which aren't subject to self-employment taxes. You still pay income tax on all of it, but avoiding SE tax on part of your business income is huge. There are some additional costs with an S-Corp (more complex tax filing, possible state fees, etc) but at $24k in business income you're right on the edge where it might start making sense.

I was in almost the exact same situation! Made $58k at my job and about $25k from my consulting business. Owed almost $8k total in federal taxes. One thing I discovered - make sure your tax preparer is deducting all legitimate business expenses. I switched to a CPA who specializes in small businesses and she found nearly $5k in deductions my previous preparer missed. Things like part of my internet bill, cell phone, home office, some travel costs, etc. Also, are you making quarterly estimated tax payments? That won't reduce your total tax bill, but it helps spread it out so you don't get hit with one huge bill (and possibly underpayment penalties).