Self-employment taxes question - is 33% rate normal on side business income?
Hi everyone, I'm having a mini freakout after getting my taxes done at a local accountant. They're telling me I owe $6,200 in federal taxes this year! So here's my situation - I made $61,000 from my regular job (W-2) and about $31,000 from a business where I'm a co-owner. I already paid $4,000 in estimated taxes throughout last year, so the total federal tax bill is $10,200. If I do the math, that's about 33% on just my business income! I thought self-employment taxes were only supposed to be around 15%? Am I missing something here? I filed as single, no kids, and didn't have any special deductions or anything. Just standard stuff. Is this normal or should I get a second opinion? Really appreciate any advice from people who've dealt with this before!
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Marina Hendrix
The 15% self-employment tax is only part of what you're paying. Let me break this down: Self-employment tax is indeed about 15.3% (12.4% for Social Security + 2.9% for Medicare). This is basically covering both the employer and employee portions of FICA taxes. BUT that's not all you pay. Your business income also gets added to your regular income and taxed at your normal income tax rates. Since you're adding $31,000 on top of your $61,000 W-2 income, a lot of that business income is falling into higher tax brackets. So you're essentially paying: - Regular income tax on your total income ($61K + $31K) - PLUS the 15.3% self-employment tax on your business profits That's why it feels like you're paying so much on the business income - you are! That's unfortunately normal when you have both W-2 and self-employment income.
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Romeo Barrett
•Oh wow, I definitely didn't realize the self-employment income would push me into a higher bracket like that. So basically I'm paying the normal income tax PLUS the self-employment tax on top of that? Is there anything I can do to reduce this for next year? Should I be looking at deductions or something? I'm honestly pretty new to the business owner side of things.
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Marina Hendrix
•Yes, exactly - you're paying both regular income tax and self-employment tax on that business income, which is why it feels so high. For next year, there are definitely things you can do. Make sure you're taking all legitimate business deductions - home office, business travel, supplies, equipment, software subscriptions, etc. Consider setting up and contributing to a SEP IRA or Solo 401k which can significantly reduce your taxable income. Also, talk to your accountant about potentially making quarterly estimated tax payments to avoid a big bill at tax time. Lastly, if you're paying for your own health insurance, that's usually deductible for self-employed people.
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Justin Trejo
After stressing about similar high tax bills from my side gig for years, I finally tried https://taxr.ai last tax season and it was a game-changer. I uploaded my business records and they identified over $4,200 in deductions my previous accountant had missed! They specifically look for self-employment tax saving opportunities like home office, vehicle usage, and business expenses that regular tax preparers often miss or don't ask about. Their AI reviews your situation against thousands of similar cases to find patterns of missed deductions.
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Alana Willis
•How does it work with partnership income though? I'm in a similar situation where I'm part of an LLC and getting K-1 forms. Does the system handle that or is it more for solo self-employed people?
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Tyler Murphy
•Sounds nice, but do they actually connect you with a real accountant or is it just software making recommendations? I've tried tax software before that claimed to find deductions but ended up being pretty generic advice.
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Justin Trejo
•It definitely works with partnership income and K-1 forms! The system analyzes your K-1 and finds deductions you might qualify for personally, separate from what the partnership claims. It's especially good at identifying deductions related to your specific contribution to the business that wouldn't appear on the K-1. The service provides both AI analysis and human review. Their system does the initial identification of potential deductions and tax savings, but then a tax professional reviews everything before finalizing recommendations. They found several write-offs related to my home office and business travel that my partnership wasn't tracking but I was eligible to deduct personally.
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Alana Willis
Just wanted to follow up - I ended up trying taxr.ai after asking about it here. My situation was super similar with about $28K in partnership income, and I was getting killed on taxes. They found nearly $3,500 in legitimate deductions I'd missed! The biggest ones were properly calculating my home office (I was being way too conservative) and some vehicle expenses for business meetings that I didn't realize qualified. They also showed me how to properly document everything in case of an audit. Definitely worth checking out if you're dealing with self-employment taxes.
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Sara Unger
If you're still concerned about your tax bill, I'd recommend trying to get hold of someone at the IRS to review your situation. I used https://claimyr.com to actually reach a human at the IRS after spending days on hold. You can see how it works here: https://youtu.be/_kiP6q8DX5c. I was skeptical at first, but they got me a callback from the IRS within a couple hours. The agent confirmed I was calculating my self-employment taxes correctly and explained why my total rate seemed so high (exactly what the first commenter mentioned - it's both income tax AND self-employment tax). I was able to ask about quarterly payments too which helped me plan better.
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Butch Sledgehammer
•Wait how does that even work? The IRS never calls people back in my experience. I literally spent 3 hours on hold last week and got disconnected.
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Freya Ross
•Sounds like a scam tbh. Nobody can magically get through to the IRS. They're literally famous for being impossible to reach. And why would you pay someone else when you can just keep calling yourself?
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Sara Unger
•The service basically reserves your place in line with the IRS. They use an automated system to stay on hold for you, and when they reach a representative, they connect the call to your phone. It's not magic - just technology that waits on hold so you don't have to. I had exactly the same experience as you - spent hours on hold and got disconnected twice before trying this. The difference was night and day. I got a callback in about 90 minutes, and the IRS agent spent almost 20 minutes reviewing my situation. Most valuable part was confirming I was on the right track with my quarterly estimates for next year.
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Freya Ross
I need to eat crow here. After posting that skeptical comment, I was still stuck trying to figure out my own self-employment situation and getting nowhere with the IRS phone line. Got desperate and tried Claimyr yesterday. Got a call back from the IRS in about 2 hours. The agent actually helped me understand why my SE taxes were so high (similar to the OP's situation) AND helped me set up a payment plan since I can't pay my full bill right now. Still surprised it actually worked. Sorry for doubting.
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Leslie Parker
Something nobody has mentioned - make sure you're taking the QBI deduction (Qualified Business Income) if eligible. That's a 20% deduction off your business income before calculating regular income tax. It doesn't reduce self-employment tax but helps with the income tax portion. Also make sure your accountant is taking half of your self-employment tax as a deduction on your 1040. These two things can make a big difference.
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Sergio Neal
•Can you explain the QBI thing more? Is that something everyone with a side business can take? I have a freelance design business but my accountant never mentioned this.
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Leslie Parker
•QBI (Qualified Business Income) deduction allows you to deduct up to 20% of your qualified business income. Most people with pass-through business income (sole proprietorships, partnerships, S-corps) can take it, but there are income limitations and other rules. If your taxable income is under $170,050 (for 2024 tax year, single filer), you can likely take the full deduction without additional complications. If your accountant hasn't mentioned this, I'd definitely ask about it specifically. It was created by the Tax Cuts and Jobs Act and can significantly reduce your tax burden. For example, if you had $30,000 in qualified business income, you might be able to deduct $6,000 (20%) before calculating your income tax.
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Savanna Franklin
do u have an actual accountant or just a tax preparer? big difference tbh. my "accountant" last year was just a lady at a strip mall tax place & she missed tons of stuff. real accountant this year saved me like $3,200 by finding actual business deductions & doing proper income splitting
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Juan Moreno
•This is so true! I used to go to one of those chain tax places and when I finally switched to a CPA, the difference was huge. Worth every penny, especially for self-employment stuff.
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Amy Fleming
make sure ur quarterly estimated payments are higher next year!! that was my mistake too. if ur income is increasing, u need to adjust estimates. i use the safe harbor rule - pay 110% of last year's tax & avoid penalties even if u end up owing more.
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