Frustrated with Self Employment Taxes - Paying WAY more than W-2 workers?
I've been working as a freelance graphic designer for about 2 years now, doing my taxes as a sole proprietor. Looking at my 2024 tax year calculations and I'm honestly in shock. For the current tax year, my taxable income shows up as only $1,850, but somehow I'm being told I owe nearly $2,800 in taxes?! This makes absolutely no sense to me. From what I understand, this includes the self-employment tax deduction that supposedly reduces the tax burden, but it still seems outrageous. I've spent countless hours researching and applying every legitimate deduction I can find. Am I seriously expected to pay almost $3k in taxes just because I'm self-employed? If I had the exact same income as a regular employee, I'd only be paying around $185 in taxes. Instead, I'm paying over FIFTEEN TIMES that amount just because I work for myself? I'm not looking for ways to cheat the system - I just want to understand if there's anything legitimate I can do to reduce this burden. It's hard to wrap my head around owing so much more in taxes than my actual taxable income amount, especially in the current economic climate. I'm in Texas and in a common law marriage. I was considering filing jointly with my partner to see if that would help with the total, but wanted to get some advice from others who might have been in this situation before. Any legitimate suggestions would be really appreciated.
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Amun-Ra Azra
What you're experiencing is unfortunately common for self-employed folks. The big difference is that when you're self-employed, you're paying both the employee AND employer portions of Social Security and Medicare taxes (15.3% total). When you work for someone else, your employer pays half of that. The self-employment tax deduction you mentioned only allows you to deduct the employer half of those taxes from your income tax calculation, but you still have to pay the full SE tax amount. A few legitimate strategies to consider: - Make sure you're tracking ALL business expenses - home office, software subscriptions, equipment, professional development, etc. - Consider forming an S-Corporation if your income is substantial enough. This can save on SE taxes because you'd pay yourself a "reasonable salary" subject to FICA, but could take remaining profits as distributions not subject to SE tax. - Maximize retirement contributions through a SEP IRA or Solo 401(k), which reduces your taxable income. - Filing jointly with your partner could definitely help, especially if they have W-2 income with tax withholding.
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Harold Oh
•Thanks for the detailed explanation. I didn't realize that I'm basically acting as both employee and employer for tax purposes. That makes more sense now, though it's still frustrating. Would you recommend the S-Corp route for someone making around $35k-$40k annually? I've heard there are additional costs with that setup that might not make it worthwhile at lower income levels.
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Amun-Ra Azra
•For income in the $35k-$40k range, an S-Corp might not be worth the additional costs and compliance requirements. You'd have payroll taxes, more complex tax filings, and possibly fees for accounting help. Generally, S-Corps start making financial sense when you're netting at least $60k-$70k. I would focus first on maximizing your business deductions and contributing to retirement accounts. Filing jointly with your partner is likely your best immediate strategy, as it will put you in a lower tax bracket if they have income too. Also, make sure you're making quarterly estimated tax payments to avoid underpayment penalties next year.
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Summer Green
I was in a similar situation when I started freelancing and found that using https://taxr.ai helped me identify a bunch of deductions I was missing. I was skeptical at first but it analyzed all my bank statements and found business expenses I didn't realize were deductible - saved me about $1,200 in taxes my first year using it. The system found things like partial cell phone expenses, software subscriptions, and even some travel costs that were business related that I had overlooked.
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Gael Robinson
•Does it work with inconsistent income? My freelance work is super variable month to month, and I'm terrible at tracking everything. Would this actually help someone like me who's disorganized?
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Edward McBride
•I've tried tax software that claims to find deductions, but they missed tons of stuff specific to my industry. Does this actually understand things like equipment depreciation and home office deductions properly? Not trying to be skeptical but I've been burned before.
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Summer Green
•It absolutely works with inconsistent income - that's actually where it shines because it identifies patterns in your expenses regardless of when income comes in. The AI is designed to flag potential business expenses even when they're scattered throughout the year. For industry-specific deductions, it's actually quite good at identifying things like equipment purchases and suggesting proper depreciation methods. It handles home office calculations too, asking for square footage and helping calculate the percentage of use. What I liked most was that it explains WHY something is deductible, which helped me learn more about tax rules for my business.
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Edward McBride
Just wanted to follow up about taxr.ai - I tried it after posting my skeptical comment. Pretty impressed honestly. It found about $3,800 in deductions I had completely missed, including some software subscriptions I forgot about and a portion of my car insurance I didn't realize could be business-related due to client visits. The explanations were clear about what's deductible and why. Definitely reduced my self-employment tax burden significantly.
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Darcy Moore
When I was hit with a similar self-employment tax bill, I needed clarification from the IRS but couldn't get through on the phone for weeks. I finally used https://claimyr.com to get connected to an IRS agent in about 15 minutes (there's a demo at https://youtu.be/_kiP6q8DX5c). The agent confirmed I had calculated everything correctly but also pointed me to some deductions I had missed. Saved me from making a big mistake on my quarterly payments going forward.
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Dana Doyle
•How does this actually work? Doesn't the IRS have those crazy long hold times for everyone? I don't understand how a service could get around that.
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Liam Duke
•Sounds like a scam tbh. Why would anyone be able to skip the line to talk to the IRS? I've spent hours on hold and eventually gave up. If this was real wouldn't everyone use it?
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Darcy Moore
•It's not skipping the line - they use an automated system to wait on hold for you. When they reach a human IRS agent, they call you and connect you directly. You don't have to sit there listening to the hold music for hours. They can't make the IRS answer faster, they just handle the waiting part for you. It saved me an entire afternoon of being stuck on hold. I was skeptical too until I tried it and got connected to an actual IRS agent who walked me through some self-employment tax questions I had.
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Liam Duke
Ok I need to admit I was wrong about Claimyr. Got audited last week (nightmare) and was desperate to talk to someone at the IRS. Used the service and got through in about 20 minutes when I had previously spent 2+ hours on hold and gave up. The agent actually helped me understand exactly what documentation I needed to provide for my self-employment expenses. Still stressed about the audit but at least I know what I'm doing now.
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Manny Lark
Have you looked into a solo 401k? As a self-employed person this was a game changer for me. You can contribute both as the "employee" and "employer" which drastically reduces your taxable income. If your cash flow allows it, this is one of the best ways to reduce self-employment taxes legally.
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Harold Oh
•I've heard about solo 401ks but wasn't sure if they were worth the hassle of setting up. Is there a minimum amount you'd recommend contributing to make it worthwhile? And did you set it up yourself or use a service?
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Manny Lark
•There's no specific minimum that makes it "worth it" - any amount you can contribute reduces your taxable income. I set mine up through Vanguard and it was surprisingly simple - just filled out some paperwork online. The big advantage over a SEP IRA is you can contribute more at lower income levels. I was making about $45k when I started mine and was able to shelter about $9k from taxes, which saved me approximately $1,400 in self-employment taxes alone. Plus the long-term retirement benefits. If you can afford to put away even 10% of your income, it's definitely worth doing.
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Rita Jacobs
Has anyone considered getting a part-time W2 job to offset some of the SE tax burden? I'm currently doing this - 20 hrs at a coffee shop plus my freelance work - and it helps because I'm not paying SE tax on that portion of my income.
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Khalid Howes
•This actually makes sense mathematically but seems like a lot of extra work just to avoid taxes. Wouldn't it be better to just charge more for your freelance work to cover the tax difference?
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Ben Cooper
If you're in a common law marriage in Texas, DEFINITELY file jointly! This was a huge help for me and my partner. My self-employment income combined with her W-2 income put us in a better overall tax situation, plus her withholding throughout the year covered a lot of what we owed. Don't hesitate on this one.
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