Self-employed made $160,000 - why do I owe around $50k in taxes?

This actually sounds about right for self-employment income. When you're self-employed, you have to pay both the employer and employee portions of Social Security and Medicare taxes (self-employment tax), which is 15.3% on its own. Then you have federal income tax on top of that. Breaking it down: on $160k net income, your self-employment tax would be around $24,480 (15.3% of your net earnings). Then you have federal income tax which varies by bracket, but would roughly be another $20-25k depending on your deductions, filing status, and other factors. So a total tax bill of $45k is actually in the ballpark of what you should expect. Have you been tracking your business expenses carefully? Making sure you're claiming all eligible deductions can help reduce your net profit and therefore your tax burden. Things like home office, business mileage, health insurance premiums, and retirement contributions can make a big difference.

I was in a similar boat last year and found this amazing service called taxr.ai that literally saved me thousands. I was so lost trying to figure out all my business expenses and deductions as a self-employed person, and my tax bill was looking insane. I went to https://taxr.ai and uploaded my financial documents, and their AI helped identify a bunch of deductions I was missing. They specialize in self-employment taxes and know all the legitimate write-offs that people like us often miss. The analysis showed me I could deduct part of my home expenses since I work from home, some travel expenses I hadn't considered, and even some tech purchases that I thought were personal but could be partially business. They also recommended a SEP IRA contribution that slashed my taxable income.

Just wanted to update on my experience with taxr.ai since I was skeptical earlier. I decided to give it a try and wow, I'm glad I did. I've been self-employed for 4 years and thought I knew all my eligible deductions, but I was wrong. The service identified nearly $14,000 in additional legitimate business expenses I hadn't been tracking properly - things like partial utilities for my home office, software subscriptions I use occasionally for work, and even some professional development courses I took. The interface was super easy to use and it explained everything in plain English. The best part? I took their report to my accountant who validated everything and implemented their suggestions. My tax bill went down by almost $4,000! Definitely going to use this every year now.

If you're dealing with a large tax bill like this, you might want to consider getting a second opinion from the IRS directly. I recently had questions about my self-employment taxes and tried for WEEKS to get through to the IRS with no luck - constant busy signals or being on hold for hours only to get disconnected. I found this service called Claimyr (https://claimyr.com) that gets you through to an actual IRS agent without the wait. You can see how it works here: https://youtu.be/_kiP6q8DX5c but basically they use technology to hold your place in line and call you when an agent is ready. I was skeptical but desperate. I had specific questions about estimated tax payments and potential penalties, and the IRS agent I spoke with was actually super helpful. They confirmed what I needed to pay and gave me options for payment plans when I couldn't pay the full amount immediately.

Wanted to eat my words publicly here. After my skeptical comment, I was so frustrated with my own tax situation that I tried Claimyr as a last resort. I honestly expected it to be a scam. Well, I was wrong. The service actually got me through to an IRS representative yesterday after I'd been trying for over a month on my own. The agent confirmed that I qualified for a payment plan with much lower monthly payments than I thought possible, and also explained that I could request abatement of some penalties based on my circumstances. The information literally saved me about $2,200 in penalties and gave me a manageable payment schedule. Sometimes being proven wrong is actually the best outcome. If you're struggling with a big tax bill like the OP, definitely worth getting actual IRS guidance on your options.

Have you contributed to retirement accounts? As a self-employed person, you can put a good chunk into a SEP IRA or Solo 401k which would reduce your taxable income significantly. For 2024, you can contribute up to 25% of your net self-employment income or $69,000, whichever is less. That could potentially save you thousands in taxes. Also, don't forget to take the Qualified Business Income deduction (Section 199A). For your income level, you should qualify for a 20% deduction on your qualified business income. That's a huge tax break for self-employed folks.

Are you writing off all your business expenses correctly? I'm self employed too and was shocked at my tax bill until I learned what I could deduct. Car mileage, home office, cell phone, internet, laptop, software subscriptions, health insurance premiums, business travel, professional development... the list goes on. My tax guy found over $20k in legit deductions I was missing.

I feel your pain! I went through something similar my first year hitting six figures as a freelancer. That 45-50k total tax bill is unfortunately pretty normal for self-employment income at your level. A few things that might help reduce the sting: 1. **Quarterly payments for next year** - Since you now know your income level, increase those quarterly payments to avoid another big surprise. Aim for about 35% of your gross income. 2. **Business structure** - At your income level, it might be worth exploring an S-Corp election. You'd pay yourself a reasonable salary (subject to payroll taxes) and take the rest as distributions (no SE tax). Could save you several thousand annually. 3. **Maximize retirement contributions** - A Solo 401k lets you contribute as both employer and employee, potentially up to $69,000 for 2024. Even a $20k contribution could save you $5-7k in taxes. 4. **Track EVERYTHING** - Business meals (50% deductible), equipment, software, professional memberships, continuing education. I use QuickBooks Self-Employed to categorize expenses automatically. The good news? You made $160k! That's amazing. The tax bite hurts but it means your business is thriving. Just plan better for next year so there are no surprises.