Hi, I was looking for SE most common tax deductions to check that I was not missing any and I found this information: I have been doing my taxes as SE for several years and I have always reported my gross income on the income part (self employed income and expenses), then reported my expenses (office, supplies, etc.) and after that TT calculates my taxes based on my net income. It seemed pretty straight forward. However, according to the paragraphs below, I could input my income dividing it in two separated sections (at least is what I understood). It seems the detail would be a change on the bracket (I don't even know if this would apply to me since I file jointly married). I just wanted to know that I am not missing something. Thanks in advance for your help.
Good news
When figuring self-employment tax you owe, you get to reduce self-employment income by half of the self-employment tax before applying the tax rate. Say, for example, that your net self-employment income is $50,000. That's the amount you report as taxable for income tax purposes on Form 1040.
But when figuring your self-employment tax on Schedule SE, Computation of Social Security Self-Employment Tax, the taxable amount is $46,175. Not paying the 15.3 percent tax on the $3,825 difference in this example saves you $585.
More good news
You can claim 50% of what you pay in self-employment tax as an income tax deduction. For example, a $1,000 self-employment tax payment reduces taxable income by $500. In the 25 percent tax bracket, that saves you $125 in income taxes. This deduction is an adjustment to income claimed on Form 1040, and is available whether or not you itemize deductions.
An example
- You run a catering business as a sole proprietor.
- In 2024 your net profit as reported on Schedule C is $35,000.
- Your net earnings subject to self-employment tax as calculated on Schedule SE would be $32,323 ($35,000 x 0.9235).
- Your self-employment tax would be $4,945 (32,323 x 0.153) and you would report that amount on Form 1040 in the "Other Taxes" section.
Then you would report one-half of your self-employment tax, $2,473, ($4,945 X .50) on Form 1040 as an adjustment to income, which reduces your Adjusted Gross Income and the amount of income tax you owe.
