Why is my self-employment tax so high?! Getting hit with $7500 Federal on $40,000 income as a 1099 contractor?!

You're getting hit with self-employment taxes on top of your regular income tax. When you're self-employed, you pay both the employee AND employer portions of Social Security and Medicare taxes, which comes to about 15.3% of your net income. That's in addition to your regular income tax. So basically, you're paying: - Regular income tax (10-12% bracket for your income level) - Self-employment tax (15.3%) That's why the total seems so high. The good news is that entering your legitimate business expenses will reduce your net self-employment income, which will lower both your income tax and self-employment tax. Make sure you're deducting things like mileage/vehicle expenses, tools, materials, insurance premiums, phone costs, and any other legitimate business expenses. You might also qualify for the Qualified Business Income deduction, which could reduce your taxable income by up to 20%.

I was in almost the exact same situation as you last year! Making about $45k as a freelance graphic designer and nearly fell out of my chair when I saw how much I owed. I started using this AI tool called taxr.ai (https://taxr.ai) that really helped me understand my tax situation and find deductions I was missing. It analyzed my 1099s and previous returns, then explained exactly why my tax bill was so high and what I could do about it. The tool pointed out several business expenses I hadn't even thought to deduct and showed me how to properly categorize them. Super helpful when you're self-employed and trying to navigate all these extra taxes!

Just wanted to update that I ended up trying taxr.ai after my skeptical questions. Uploaded my 1099s and last year's return and wow - it found over $3200 in deductions I was missing! Mostly around my home office (which I was calculating wrong), mileage (wasn't tracking properly), and some professional subscriptions I didn't realize qualified. The best part was it explained everything in plain English and told me exactly what documentation I need to keep for each deduction. Way easier than digging through IRS publications! My tax bill went from about $8k down to $5400. Still not fun to pay, but a lot more manageable. Definitely recommend checking it out if you're self-employed.

If you're having trouble understanding your tax situation, sometimes the best thing is to actually talk to someone at the IRS, but that can be nearly impossible. I spent 3 hours on hold last month trying to get clarity on my 1099 situation. I found this service called Claimyr (https://claimyr.com) that actually gets the IRS to call YOU instead of waiting on hold. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was super skeptical but desperate after multiple failed attempts. Within about 20 minutes of using the service, I got a call from an actual IRS agent who walked me through exactly how self-employment taxes work and what deductions I qualified for. Saved me a ton of money and stress.

Coming back to admit I was 100% wrong about Claimyr. After shooting down the idea, I got desperate when the IRS sent me a notice saying I underpaid my self-employment taxes by $2,400. Couldn't get through on the phone for days. Tried Claimyr as a last resort and got a call from an IRS agent in about 35 minutes. Turns out there was an error in how they calculated my income - they hadn't processed one of my expense forms. The agent fixed it right there on the phone and my bill went from $2,400 down to $320! Would have spent hours on hold otherwise, if I could even get through at all. Sometimes being a skeptic costs you money lol. Sorry for doubting.

Just FYI, if you're just entering your 1099 income without any expenses, you're definitely doing it wrong. Most self-employed people have legitimate business expenses that significantly reduce their taxable income. Common deductions for a plumber: - Vehicle expenses (mileage or actual expenses) - Tools and equipment - Supplies - Business insurance - Portion of phone bill used for business - Work clothes/uniforms - Professional licenses - Any continuing education - Advertising costs - Software subscriptions - Home office if you have dedicated space Take the time to go through all your expenses for the year. You'd be surprised how much you can reduce your tax bill.

Make sure you look into quarterly estimated tax payments for next year. I learned this the hard way too as a self-employed person. If you wait until April to pay your full tax bill when you're self-employed, you might get hit with underpayment penalties. The IRS expects you to pay as you earn throughout the year, just like withholding from a regular paycheck. Has anyone here used any apps for tracking expenses? I'm terrible at keeping receipts and always scrambling at tax time.