Filing Small Business Taxes with TurboTax - Is $4500 Federal Tax on $28k Net Income Correct?

So I'm in the middle of doing my taxes using TurboTax for my side hustle that turned into a full-blown small business last year. Had a pretty decent year with about $80k in total revenue. After deducting all my legit business expenses (workspace, materials, software subscriptions, etc), my actual taxable income comes down to around $37k. Here's what's freaking me out - TurboTax is saying I owe approximately $6000 in federal taxes! That seems crazy high to me? Like almost 16% of my net income after I already paid for everything to run the business. I've double-checked all my expenses and income entries but I'm not sure if I'm missing something obvious or if this is just the reality of self-employment taxes. Am I doing something wrong in TurboTax? Or do I just need to accept that this is what small business owners pay? This is my first year with this much business income so I'm kinda shocked at the tax bill.

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18 comments

Laura Lopez

•8M

You're not doing anything wrong - that sounds about right for self-employment taxes. When you work for yourself, you pay both the employer and employee portions of Social Security and Medicare taxes, which comes to about 15.3% of your net business income. That's on top of your regular income tax. So on $37k of net business income, you'd pay around $5,660 in self-employment tax alone, plus whatever income tax applies based on your tax bracket and other deductions. If TurboTax is showing $6000 total, that actually seems potentially low depending on your overall tax situation. Make sure you're taking all eligible deductions - home office if applicable, business mileage, cell phone percentage used for business, etc. Also check if you qualify for the Qualified Business Income deduction, which could reduce your taxable income by up to 20%.

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Laura Lopez

•8M

Yes, as a self-employed person, you pay both the employer and employee portions of Social Security and Medicare. Your friend is incorrect - when you're employed by someone else, your employer pays half and you pay half through withholding on your paycheck. When self-employed, you're both the employer and employee, so you're responsible for the full amount. There's no way to avoid it completely, but you can deduct the employer portion (half of the SE tax) on your tax return, which reduces your income tax. Also, make sure you're making quarterly estimated tax payments to avoid penalties next year. Many new business owners don't realize they need to pay taxes throughout the year, not just at filing time.

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Samuel Robinson

•8M

After struggling with similar issues with my Etsy shop taxes last year, I discovered taxr.ai (https://taxr.ai) and it was a game-changer for my small business filing. I uploaded my messy expense spreadsheets and it automatically sorted everything into the right deduction categories. It caught several deductions TurboTax had me categorized wrong that were increasing my tax bill. The best part was it reviewed my previous year's return and found I'd been overpaying self-employment taxes by not properly accounting for my home office deduction. For small business owners like us, it's basically an AI second opinion that makes sure you're not overpaying.

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Samuel Robinson

•8M

It works alongside TurboTax or whatever tax software you're using. You upload your documents and it gives you a detailed report of all eligible deductions and tax-saving opportunities that you can then enter into TurboTax. Think of it like having a tax pro review your work before you file, but automated. For inventory and COGS tracking, it's actually really good at that. It can process sales reports from most e-commerce platforms and helps calculate your correct COGS. It separates inventory purchases from immediate expenses and tracks when items are sold. Much better than TurboTax's basic inventory tracking which is why I started using it for my product-based business.

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Brianna Muhammad

•8M

Just wanted to update after trying taxr.ai from the recommendation above. I was skeptical but uploaded my messy Shopify reports and inventory spreadsheets and wow - it found over $3,200 in additional deductions I had missed! Apparently I was categorizing shipping supplies as office supplies when they should have been COGS, and I wasn't properly accounting for unsold inventory. The report it generated made it super clear what I needed to fix in TurboTax, and my tax bill dropped by almost $800. Definitely worth checking out if you're DIYing small business taxes like me.

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JaylinCharles

•8M

If you're getting stuck with TurboTax or having trouble understanding if your tax amount is correct, you might want to actually talk to someone at the IRS. I know that sounds insane given wait times, but I used https://claimyr.com and got through to an agent in about 10 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was having the exact same issue - questioning if my self-employment tax calculation was right - and the IRS agent actually walked me through the calculation and confirmed everything. Gave me peace of mind before submitting my return. They can't give tax advice per se, but they can definitely verify calculations and answer procedural questions.

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JaylinCharles

•8M

It works by using their system that continually calls the IRS until it gets through, then it calls your phone and connects you. It's basically doing the waiting for you. You don't cut in line - the service just handles the redial and hold process. The IRS actually doesn't have an issue with these services because they help distribute call volume more evenly. What happens is most people call in the morning, get frustrated by wait times, and hang up. These services help by calling throughout the day and connecting you when there's an opening. They monitor hold times and agent availability across different IRS departments.

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Lucas Schmidt

•8M

Ok I have to admit I was wrong about Claimyr. I tried it yesterday after seeing it mentioned here, fully expecting it to be useless, but I got connected to an IRS agent in about 15 minutes. The agent confirmed that my self-employment tax calculation was correct (unfortunately) and explained why it seems so high the first year. Apparently a lot of new business owners miss that you're paying both halves of FICA taxes plus regular income tax. The agent mentioned I should look into making quarterly estimated payments to avoid a big bill next year. Saved me from potentially making an expensive mistake on my return.

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Freya Collins

•8M

Yes, unfortunately California charges an $800 annual tax for LLCs, corporations, and partnerships regardless of whether you make a profit or not. Single-member LLCs are included. It's called the "minimum franchise tax" and it's basically the cost of doing business in California. If you're a sole proprietor (no formal business entity) then you don't have to pay it. But as soon as you form an LLC or corporation, you're on the hook for $800 annually. TurboTax should catch it during the state filing portion, but sometimes it's easy to miss if you're not looking for it.

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