Q. For example: I own $4000 in federal income tax and I paid $2500 excise tax. Thus I should only pay $1500, in federal income tax. Am I wrong?
A. Yes, that is wrong.
Although the $2500 is a "tax", for purposes of your business tax return (Schedule C), it is only a deduction from your business income. That is, your business profit will be reduced by $2500 and you will pay tax (both federal income tax and self employment tax) on $2500 less income. So ~$500 sounds about right.
