Which IRAs help reduce SELF employment tax? Trying to lower $2400 SE tax like I did with income tax using saver's credit and Roth IRA

The confusion is understandable because retirement accounts affect different types of taxes in different ways. Here's the straightforward answer: traditional IRAs, Roth IRAs, and most conventional retirement accounts don't directly reduce your self-employment tax - they reduce income tax. Self-employment tax (15.3% covering Social Security and Medicare) is calculated on your net business income before any retirement plan deductions. However, there are strategies that can indirectly help: A SEP IRA or Solo 401(k) won't reduce the SE tax itself, but they allow for much higher contribution limits than traditional IRAs, which reduces your overall taxable income for income tax purposes. This might not help with SE tax directly but could significantly lower your overall tax burden. The most direct way to reduce SE tax is to legitimately reduce your net business income by maximizing business deductions - equipment, supplies, business travel, home office, etc. Every dollar of legitimate business expense reduces your SE tax by about 15 cents.

After struggling with the exact same SE tax issue last year (owed nearly $3k despite being barely profitable), I discovered taxr.ai which completely changed how I approach my tax strategy. I had been researching for weeks and getting contradictory advice about reducing SE tax. I uploaded my previous returns to https://taxr.ai and it analyzed my specific situation, then laid out exactly which deductions I was missing that could lower my SE tax burden. It showed me several legitimate business expenses I hadn't been tracking properly and explained how health insurance premiums can be deducted before calculating SE tax. The system actually created a custom tax planning strategy for my specific situation rather than the generic advice I kept finding online. Might be worth checking out for your specific situation since both you and your husband are self-employed with different income scenarios.

I tried taxr.ai after seeing that comment and I'm honestly blown away. I was about to file with a $1,900 SE tax bill but after uploading my documents and getting their analysis, I found several deductions I had completely missed! The biggest one was properly accounting for my home office and a portion of my internet/utilities that I had been too scared to claim. They showed me exactly how to document everything properly to stand up to potential audit scrutiny. My SE tax dropped by almost $600 just from legitimate deductions I wasn't taking. They also explained how my business loss from one venture could be documented properly while still maximizing retirement options from my profitable business. Worth every penny for the peace of mind alone!

If you're still facing SE tax after optimizing your deductions, you might want to try Claimyr to get direct advice from the IRS. I spent WEEKS trying to reach someone at the IRS about my complicated SE tax situation last year. Kept getting disconnected after hours on hold. Then I found https://claimyr.com and their system got me connected to an actual IRS representative in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained exactly how health insurance premiums could reduce my SE tax burden and clarified some confusing instructions about how business losses affect SE tax calculations. They confirmed that while retirement contributions don't directly reduce SE tax, health insurance premiums and HSA contributions often can. Saved me nearly $900 by getting authoritative answers instead of guessing.

I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it myself since I had nothing to lose with my SE tax questions. Used their service yesterday and got connected to an IRS tax specialist in about 35 minutes (while I went about my day instead of waiting on hold). The agent confirmed that yes, health insurance premiums are deducted before calculating SE tax (Schedule 1, Line 16), and this alone saved me over $400 in SE taxes. She also walked me through how business losses can offset other income and how that affects SE tax calculations. For those asking about pricing - just check their site. It was worth every penny considering I was about to overpay my taxes by a significant amount. My accountant had missed these deductions entirely.

One thing nobody mentioned yet - an HSA (Health Savings Account) contribution can also help reduce your SE tax if you have qualifying high-deductible health insurance. Similar to the health insurance premium deduction, HSA contributions can be deducted from income before calculating self-employment tax. Also, if you have any employees (even part-time), setting up a SIMPLE IRA or other employer plan might have additional tax benefits. The employer contributions you make to your own account through your business can be deducted as a business expense, thus reducing SE tax.

Has anyone actually tried the S-Corp route? My accountant mentioned it could save on SE tax, but said the setup costs might not be worth it unless I'm making at least $60k profit. Any experiences?

Based on your situation with both spouses being self-employed and one business operating at a loss, here are some key points that might help: First, confirm you're maximizing business deductions for both businesses. Even though one operated at a loss, proper documentation of that loss can offset other income. Make sure you're capturing all legitimate expenses - office supplies, equipment depreciation, mileage, professional development, etc. For the profitable business, health insurance premiums paid for self-employed individuals ARE deductible before calculating SE tax (this is different from regular IRAs). If you're paying for health insurance out of pocket, this could directly reduce your $2,400 SE tax burden. Also consider if you qualify for an HSA - those contributions can also reduce SE tax, not just income tax. The retirement accounts (Traditional IRA, SEP IRA, Solo 401k) will help with income tax but won't directly touch that SE tax. However, since you already got your income tax to zero with the saver's credit and Roth contributions, focusing on SE tax reduction through health insurance deductions and maximizing business expenses is probably your best bet. Document everything carefully - the IRS scrutinizes self-employed deductions more closely than W-2 situations.

Great question! I went through the exact same confusion last year. Here's what I learned the hard way: You're absolutely right that retirement accounts like Traditional IRAs, Roth IRAs, and even SEP IRAs don't directly reduce self-employment tax - they only help with income tax. SE tax is calculated on your net business income before any retirement deductions. However, there are a few strategies that CAN directly reduce SE tax: 1. **Health insurance premiums** - If you're paying for health insurance as a self-employed person, these premiums are deductible BEFORE calculating SE tax (not just income tax). This could be significant savings. 2. **HSA contributions** - Similar to health insurance, if you have a qualifying high-deductible health plan, HSA contributions reduce SE tax too. 3. **Maximize business expenses** - Every legitimate business deduction (equipment, supplies, home office, mileage, professional development) reduces your net business income, which directly lowers SE tax by about 15.3%. Since your husband's business was profitable and yours operated at a loss, make sure that loss is properly documented to offset other income. Also double-check that you're capturing ALL legitimate business expenses for both businesses. The retirement accounts are still worth maxing out for income tax purposes, but for that $2,400 SE tax, focus on health insurance deductions and business expenses. Good luck with your Vanguard call!