Confused about how much self employment taxes should be for my business income
I just got my tax return back from a local preparer and I'm a bit shocked at what I owe. They're saying I owe $4900 in federal taxes. For context, I made $55,000 as an employee at my regular job and then another $24,000 through a business where I'm a partner. I already paid $3,000 in federal estimated taxes last year, so that means I'm paying $7,900 total federal taxes on the $24,000 business income. That works out to about 33% on my business earnings! I filed as single, no dependents, and didn't take any other deductions. Am I crazy or does this seem way too high? I thought self employment taxes were only supposed to be around 15%? Any help figuring this out would be really appreciated. I'm not sure if there's a mistake or if I'm just not understanding something about how self employment taxes work.
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Connor Gallagher
The 15% you're thinking of is just the self-employment tax portion, which covers Social Security and Medicare (what's normally split between employee and employer on W-2 income). But that's not the only tax you pay on self-employment income. Your business income gets taxed twice essentially: once for the self-employment tax (around 15.3%), AND again as regular income tax at your marginal tax rate. Since you already have $55K from your job, your additional $24K business income is getting taxed at a higher marginal rate, probably 22% or higher. So when you add the two together (15.3% SE tax + ~22% income tax), you get close to that 33% effective rate on your business income. This doesn't even account for state taxes if your state has income tax.
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Zainab Ahmed
•Oh wow, I had no idea it worked that way! So my business income is basically getting hit twice? That makes more sense now, though it still sucks to pay that much. Are there any deductions I should be taking that might help reduce this? The tax preparer didn't really ask me about business expenses or anything.
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Connor Gallagher
•Yes, absolutely there should be deductions! If you're a partner in a business, you should be able to deduct legitimate business expenses against that income, which could significantly reduce your tax burden. Common deductions include home office (if you have dedicated space), business mileage, supplies, software subscriptions, professional development, phone/internet (business portion), insurance premiums, and retirement plan contributions like a SEP IRA or Solo 401(k). The fact that your preparer didn't ask about expenses is concerning - you might want to consider filing an amended return after gathering documentation of your business expenses.
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AstroAlpha
I had almost the exact same situation last tax season! I was completely blindsided by how much I owed on my side business income. After struggling to make sense of everything, I found this AI tax assistant at https://taxr.ai that helped me identify business deductions I'd completely missed. It basically analyzes all your income streams and shows what's affecting your tax situation. Found out I could deduct almost $8k in business expenses I had no idea about - things like partial rent for my home office, software subscriptions, even part of my phone bill since I use it for work. The tool creates this visualization showing exactly how each source is being taxed differently.
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Yara Khoury
•How does it work with partnership income though? My business is an LLC with two partners and I get a K-1. Would it still catch deductions in that scenario or is it more for sole proprietors?
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Keisha Taylor
•Sounds a bit too good to be true tbh. Did you actually get your refund increased? And how much does this service cost compared to something like TurboTax?
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AstroAlpha
•For partnership income, it actually works really well because it can analyze your K-1 and show which expenses should be claimed on your personal return versus what should be deducted at the partnership level. It helped me understand which deductions I could take personally even with K-1 income. Regarding results, yes it actually increased my refund by about $1,200 after I filed an amended return with the additional deductions it found. I don't want to focus on the cost, but I will say it was significantly less than what I saved in taxes.
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Keisha Taylor
Just wanted to follow up - I was pretty skeptical about that taxr.ai thing but decided to give it a shot since my situation is similar to yours. I uploaded my K-1 and last year's return and it immediately flagged about $5,300 in deductions I had completely missed! Mostly home office, mileage, and some technology purchases I didn't realize qualified as business expenses. The visualization really helped me understand why my taxes were so high - seeing the double taxation on self-employment income made everything click. I'm filing an amended return this week and should get back around $1,100. Wish I'd known about this earlier!
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Paolo Longo
If you're really stuck with the IRS and need to talk to a human, I'd recommend Claimyr https://claimyr.com - I was banging my head against the wall trying to get through to someone at the IRS about my self-employment tax issue. Spent HOURS on hold over multiple days and kept getting disconnected. Claimyr got me through to an actual IRS agent in under 20 minutes when I'd been trying for weeks. You can see how it works here: https://youtu.be/_kiP6q8DX5c In my case, there was actually an error in how my partnership income was being processed, and talking to the agent directly saved me over $2,000 in incorrect tax assessments. The relief of actually speaking to a human who could fix my issue was honestly priceless.
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Amina Bah
•Wait, how does this even work? The IRS phone system is a nightmare, how can a service possibly get you through faster than just calling yourself?
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Oliver Becker
•Yeah right. If this actually worked everyone would be using it. The IRS doesn't give priority access to third parties. This sounds like a scam to me.
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Paolo Longo
•It works by using an automated system that navigates the IRS phone tree and waits on hold for you. Once it reaches a live agent, it calls you and connects you directly to them. It doesn't skip the line or get priority - it just does the waiting for you so you don't have to stay on hold for hours. As for skepticism, I understand completely. I felt the same way until I tried it myself. The IRS doesn't give them priority, but the service basically just automates the hold process and alerts you when there's actually a human on the line. It saved me from wasting an entire day listening to hold music.
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Oliver Becker
I have to admit I was totally wrong about Claimyr. After posting that skeptical comment, I decided to try it anyway since I was desperate to resolve an issue with my self-employment taxes. I had been trying for literally THREE WEEKS to get through to the IRS with no luck. Used the service on Tuesday and got connected to an agent in about 35 minutes. The agent was able to pull up my account and confirmed there was a discrepancy between what was reported on my K-1 and what was showing in their system. Fixed it right there on the phone and saved me from having to pay an extra $1,700 in incorrect taxes. The relief of actually resolving this issue after weeks of stress was absolutely worth it. Sometimes it's okay to admit when you're wrong!
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CosmicCowboy
Quick tip that helped me: If you're a partner in a business, make sure you're tracking ALL business expenses throughout the year. I made the mistake of not separating personal vs business and paid WAY too much in SE taxes. Things that are often missed: - Mileage for business travel - Home office deduction (if you have dedicated space) - Health insurance premiums if you're self-employed - Retirement contributions like SEP IRA - Professional development costs - Business portion of phone/internet I ended up getting a different tax preparer and filing an amended return that saved me almost $3,500 last year!
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Zainab Ahmed
•Thanks for this! Did you have to provide receipts for everything when you filed the amended return? I'm terrible at keeping track of receipts but I definitely have business expenses I could deduct.
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CosmicCowboy
•You don't necessarily need physical receipts for every single thing, but you do need some form of documentation. Bank/credit card statements can work for many expenses. For mileage, keep a log (even retroactively if you can reconstruct your business trips). For home office, you need square footage calculations and photos are helpful. The key is having some reasonable proof if you're audited. For smaller items under $75, the documentation requirements are less strict, but for anything substantial, you want something to back it up. Start tracking everything properly going forward - I use an app now that lets me snap pics of receipts and categorize them immediately.
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Natasha Orlova
Has anybody else had the same confusion between self-employment tax vs. income tax? I've been working as an independent contractor for 2 years and STILL don't fully understand why my effective tax rate is so high compared to when I was just a W-2 employee.
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Javier Cruz
•The biggest shock for me was realizing that when you're self-employed, you pay BOTH halves of FICA (Social Security and Medicare). As an employee, your employer pays half and you pay half, but self-employed folks pay the whole 15.3%. Then on top of that, you're still paying regular income tax! What helped me was setting aside 30% of every payment I receive for taxes. It sounds high but it's better than being surprised with a huge bill at tax time.
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Natasha Orlova
•That makes so much sense! No wonder I've been getting hit so hard. I was only setting aside about 15% thinking that would cover it. Guess I need to bump that up to 30%.
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Emma Thompson
One thing I didn't see mentioned here - you might benefit from changing your business structure. If you're currently a partnership or sole proprietor, you might save on self-employment taxes by setting up as an S-Corp. You'd pay yourself a reasonable salary (which would still have FICA taxes) but could take the rest as distributions that aren't subject to self-employment tax. At $24k it might not be worth the extra compliance costs, but if your business income is growing, it's definitely something to consider for next year. Saved me about $4k last year on $85k of business income.
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