Federal Tax Rate and Calculation

[RedBen]

Does the income tax rate change based on the LLC's (sole membership) income bracket (if less than $50k) or is it 22% for all?

Also is the self-employment tax (15,3%) calculated based on the 100% net income?

Let's say I have an income of $10.000 (after expenses), will the estimated SE tax be $1,530? Of which 50% is deductible?

Thanks!

[K M W]

An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes, so the income and expenses of the LLC are reported on the owner's Form 1040, Schedule C (sole proprietorship for a business), Schedule E (real estate rental), or Schedule F (farming).  Note that a Single Member LLC can elect to be taxed as a corporation (C corp or S corp) for federal tax purposes - but based on your question I don't think you made that election, so I will answer based on the LLC being reported as a sole proprietorship on your personal tax return, Schedule C.

As a Schedule C business, your net business income will be taxed based on your individual tax rates - so you would use the tax brackets for individual returns to determine what rate your business income will be taxed at. 

In addition to income taxes, you will pay the Self-Employment Taxes on your net Schedule C Income.  Self-employment tax is comprised of Social Security and Medicare tax assessed on taxpayers who work for themselves. Self-employment tax is similar to FICA taxes withheld from the pay of most wage earners. The SE tax rate on net earnings is 15.3% (12.4% Social Security tax plus 2.9% Medicare tax). Note that only
the first $160,200 (2023) of net earnings from self-employment is subject to the 12.4% Social Security part of self-employment tax. All net earnings from self-employment are subject to the 2.9% Medicare part of self-employment tax.

A taxpayer can also deduct one-half of the total self-employment tax amount as an adjustment to income on line 15, Schedule 1 (Form 1040).

Generally speaking, if you have income from self-employment of $10,000, your self employment tax is roughly $1,400 and the deduction for self-employment taxes is roughly $700 (the tax is calculated by taking your net profit from Schedule C and multiplying by 92.35%, so the actual tax is slightly less than 15.3%).

Additionally, under current tax law you may be eligible to take a Qualified Business Income Deduction of up to 20% of your qualified business income.  Be aware that this deduction is currently set to expire after 2025. 

[marctu]

Self-Employment ("SE") tax is 15.3% of 92.35% of SE net income.  So the SE tax calculation based upon your fact pattern is $10,000 (Net Income *0.9235*0.153=$1,413.  

So, if this is a single member LLC it would file on a Schedule C.  The best way to look at this is marginal income. 

So, let’s start with the tax brackets for 2024:

2024 Filing Status: Single, Married Filing Jointly (MFJ), and Qualifying Surviving Spouse (QSS)

Tax Rate	Single Taxable Income Range (2024)	MFJ and QSS Taxable Income Range (2024)
10%	Not over $11,600	Not over $23,200
12%	Over $11,600 but not over $47,150	Over $23,200 but not over $94,300
22%	Over $47,150 but not over $100,525	Over $94,300 but not over $201,050
24%	Over $100,525 but not over $191,950	Over $201,050 but not over $383,900
32%	Over $191,950 but not over $243,725	Over $383,900 but not over $487,450
35%	Over $243,725 but not over $609,350	Over $487,450 but not over $731,200
37%	Over $609,350	Over $731,200

2024 Filing Status: Head of Household (HOH) and Married Filing Separately (MFS)

Tax Rate	HOH Taxable Income Range (2024)	MFS Taxable Income Range (2024)
10%	Not over $16,550	Not over $11,600
12%	Over $16,550 but not over $63,100	Over $11,600 but not over $47,150
22%	Over $63,100 but not over $100,500	Over $47,150 but not over $100,525
24%	Over $100,500 but not over $191,950	Over $100,525 but not over $191,950
32%	Over $191,950 but not over $243,700	Over $191,950 but not over $243,725
35%	Over $243,700 but not over $609,350	Over $243,725 but not over $365,600
37%	Over $609,350	Over $365,600

If your filing status is single the standard deduction would be $14,600 for tax year 2024.   If Married Filing Jointly it is $29,200. 

You would need to take all the income for the full tax year and go through the tax brackets.  If all the income including the LLC was less than $50K or for that matter $61,750 if you are single, then you would not even reach the 22% tax bracket.

Thank you so much for your question  

Be well and safe!

Marc T.

Turbo Tax Expert

27 Years of Experience Helping Clients

[RedBen]

So how do I determine if I qualify for the Business Income Deduction?

[K M W]

Regarding what qualifies for the Qualified Business Income Deduction, TurboTax will walk you through all the questions to determine if your business meets the rules.  

A taxpayer’s qualified trades and businesses include his or her trades or businesses for which the taxpayer is allowed a deduction for ordinary and necessary business expenses.
Exceptions: Trade or business does not include the following:

• Trades or businesses conducted through a C corporation,
• Wages earned as an employee, and
• Specified service trades or businesses for taxpayers with taxable income above the threshold amounts (note: the threshold are based on your filing status - if your income is above the threshold, then your deduction may be reduced). A Specified service trade or business is any trade or business providing services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any other trade or business where the taxpayer receives fees, compensation, or other income for endorsing products or services, for the use of the taxpayer’s image, likeness, name, signature, voice, trademark, or any other symbols associated with the taxpayer’s identity, or for appearing at an event or on radio, television, or another media format.

[MirthaG]

You inquired as to what is the  income tax rate of an   LLC's (sole membership) or if it is    22%.  There is no flat rate of taxes for LLC income.  The IRS treats as single member LLC as a disregarded entity.  You report the income and expenses of the LLC in schedule C of  your Form 1040 (Personal taxes).    The LLC income is added to all your other income and  allowable deductions   are taken to arrive at taxable income.  The tax rate depends on the  amount of taxable income and your tax bracket.  

If you have self employment income you will  need to compute the self employment tax (15.3%) .  You will be able to deduct in your tax return between 50%-57% of the self employment  tax as an expense.   See below the  link to self employment tax article. https://turbotax.intuit.com/tax-tips/self-employment-taxes/tips-to-reduce-self-employment-taxes/L9K7.... Just to clarify the  self employment tax is a tax based on Self Employment income, not all income. 

 You are correct in estimating that  if  the self employment net income is $10,000 then the self employment tax would be $1,530.00, and approximately 50% of the tax would be deductible in calculating taxable income.