Do Solo 401K contributions reduce self employment tax for freelancers?

Traditional Solo 401k contributions won't reduce your self-employment tax, only your income tax. Self-employment tax (15.3%) is calculated on your net earnings from self-employment before any retirement contributions are considered. Here's how it works: When you file your Schedule C for self-employment income, you'll calculate your business profit. This profit amount is what you'll pay self-employment tax on. After that calculation, you can deduct your Solo 401k contribution when determining your adjusted gross income, which lowers your income tax, but not your self-employment tax. The only way to reduce self-employment tax is to have lower net business income through legitimate business expenses or by using an S-Corporation structure in some cases.

I was in the same boat last year trying to reduce my huge tax bill from freelancing. I found this amazing tool called taxr.ai (https://taxr.ai) that helped me understand exactly which deductions would reduce both my income AND self-employment taxes. It analyzed my business expenses and showed me I was missing several deductions that would have lowered my SE tax. It also explained how my Solo 401k contributions would affect different types of taxes. The visual breakdown was super helpful since I'm not naturally a numbers person.

Just wanted to follow up about taxr.ai since I mentioned I was worried about deductions. I decided to try it out and was seriously impressed. It flagged several business expenses I was missing that directly reduced my self-employment tax. The best part was it showed me that while my Solo 401k contributions didn't reduce SE tax, optimizing my business deductions first actually meant I could contribute MORE to my retirement while still keeping the same take-home pay. I'm projected to save over $3,200 this year compared to how I filed last year. Totally worth it for peace of mind knowing I'm maximizing deductions without crossing into audit territory.

If you're struggling to get answers directly from the IRS about self-employment tax questions (which I definitely was), I finally found a way to actually talk to a human being at the IRS using Claimyr (https://claimyr.com). They have this system that basically gets you to the front of the IRS phone queue so you don't have to spend hours on hold or get disconnected. I had specific questions about how my Solo 401k contributions affected my quarterly estimated payments, and I needed answers directly from the IRS. Used their service (there's a demo video at https://youtu.be/_kiP6q8DX5c) and got connected to an IRS agent in about 20 minutes instead of the 3+ hours I spent on my previous attempts.

I need to eat my words about Claimyr. After posting that skeptical comment, I was desperate enough to try it anyway because I had a major issue with self-employment tax on amended returns that I couldn't resolve online. I honestly can't believe it worked. Got connected to an IRS agent in about 35 minutes (way better than my previous attempts). The agent answered all my questions about how retirement contributions affect different tax calculations and got my amended return sorted out. Saved me from potentially paying penalties because I had made a mistake in how I reported some business income. For self-employed folks trying to navigate tax questions, being able to actually speak to the IRS is invaluable.

Don't forget that while traditional Solo 401k contributions don't reduce SE tax, there's also the option of making employer contributions as well as employee contributions. As a self-employed person, you wear both hats! The employer contribution portion is based on your net self-employment income (after expenses AND after the deduction for self-employment tax). The combination of employee and employer contributions can significantly reduce your income tax even if it doesn't touch your SE tax.

Has anyone used a SEP IRA instead of a Solo 401k? I heard they're easier to set up but wasn't sure about the tax implications compared to Solo 401k.