Self Employment Taxes Higher Than My Income? Need Help Understanding SE Tax Burden

Thanks for explaining this. I didn't realize self-employment tax was essentially double what employees pay. That makes more sense now, though it's still painful. I think I've got most business expenses covered (equipment, software subscriptions, portion of internet), but I haven't claimed a home office deduction because I wasn't sure if my workspace qualified. It's not a separate room - just a dedicated corner of my living room with my desk and equipment. Would that still count? Also, I've heard about retirement accounts but wasn't sure which one would be best for someone just starting out with modest income. What's the difference between a SEP IRA and Solo 401(k)?

For the home office deduction, it doesn't need to be a separate room, but it must be a clearly defined space used exclusively for business. So if that corner of your living room is used solely for work and nothing else, you can claim it! Measure the square footage of your workspace and divide by total home square footage to get the percentage you can deduct of rent/utilities. Regarding retirement accounts, a SEP IRA is simpler to set up but limits contributions to about 20% of your net self-employment income. A Solo 401(k) requires more paperwork but allows higher contributions - you can contribute as both "employer" and "employee" which often means you can put away more money tax-deferred. For someone just starting out, a SEP IRA might be easier, but if you can afford to save more, the Solo 401(k) gives you more flexibility long-term.

Does it actually connect to your bank account or do you just upload statements? I'm always nervous about giving access to financial accounts. Also, how does it handle mixed-use expenses? Like if I buy camera equipment but sometimes use it for personal photos too?

I've heard of AI tax tools but most of them seem super basic. How good is it with the specific self-employment tax questions? Like does it know about the QBI deduction and stuff like that? My situation is kinda complicated with multiple income streams.

You just upload PDF statements, no direct bank connection needed! That was a big concern for me too. You maintain complete control over what you share, and the security is top-notch with encryption. For mixed-use items, it actually helps you calculate the proper business percentage. For something like camera equipment, you estimate what percentage is business use (like 80%) and it helps you document that properly so it stands up to scrutiny if you ever get audited. It's all about proper documentation rather than trying to claim things incorrectly. It handles complex self-employment situations really well! It guided me through QBI deduction, helped identify write-offs for my studio space, and even calculated mileage for business travel. I have wedding income, portrait sessions, and print sales, and it helped categorize everything correctly. The AI actually gets more helpful with complex situations because it can spot patterns humans might miss.

Wait I don't understand - how does this work? Does this company have some special connection to the IRS or something? Because I've literally wasted entire days trying to reach someone.

This sounds like a scam. There's no way anyone can get you through to the IRS faster than the general queue. They probably just connect you to some call center pretending to be IRS agents. I'd be careful about sharing any personal info with services like this.

It's actually pretty straightforward - they use an automated system that navigates the IRS phone tree and waits on hold for you. When an actual IRS agent picks up, you get a call connecting you directly to that agent. It's just technology doing the waiting part for you. They don't have any special connection to the IRS or secret phone numbers - they're using the same public lines everyone else uses, but their system is persistent and doesn't get disconnected like when we humans try to wait on hold for hours. I totally understand the skepticism - I felt the same way! But it's definitely the real IRS you're talking to. They don't take any of your tax information themselves - they just connect the call. When you're connected, you're talking directly to an official IRS representative who verifies your identity just like if you'd called yourself. The service just saves you from the hold time nightmare.

This! I switched to an S-Corp last year and it saved me about $4k in self-employment taxes. Just make sure your salary is "reasonable" for your industry or the IRS might get suspicious. Also, you'll need to run actual payroll which adds some complexity and costs.

That's exactly right. The key is finding the sweet spot where the tax savings outweigh the additional costs and complexity. For my web development business, I waited until I was consistently making about $60k before making the switch. The "reasonable salary" part is crucial - you can't just pay yourself $1 and take everything else as distributions. I researched industry standards for my area and skill level, then documented why my salary was reasonable. Having this documentation is important if you're ever questioned. Also worth mentioning that with an S-Corp, you'll need to separate your personal and business finances completely, run payroll (usually through a service), and file more complex tax returns. There's software that helps with this, but it's definitely more work than a sole proprietorship.

I vaguely remember seeing something about this when I was researching, but wasn't sure if it applied to me since my income is relatively low. Does it work for all self-employed people or are there specific requirements? How complicated is it to calculate?