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I am a sole proprietor. Why was a "blended tax rate" used to calculate my taxes?

I am a sole proprietor. I just finished my Turbotaxes and am going through the "Federal Review" section. Under "Explainwhy">"Why am I getting a refund of $????", it lists the various components of my return, such as Total Income, Deductions, Taxable Income, etc. Then it shows "Blended Tax Rate" and shows that to be 47.9% and the next line shows my Tax Liability as about half of my Taxable Income! That doesn't seem correct. I thought my tax rate would be around 22% based on my income. Is Turbotax applying the incorrect tax rate? I looked up Blended Tax Rate and that seems to be used for corporations, not sole proprietors. I worked with a Turbotax support rep for several days on these, and he agreed that it did not seem correct, but ultimately was stumped by Turbotax would apply that rate to my situation. I'm hoping someone here can shed some light and perhaps fix the program error if there is one. Thanks, Tom
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3 Replies
MaryK4
Expert Alumni

I am a sole proprietor. Why was a "blended tax rate" used to calculate my taxes?

Your blended tax rate is the same as your effective tax rate.  Your effective tax rate is the average rate you pay on all your taxable income.  This includes federal and state income tax and self-employment tax.  For more information, see .What Are Tax Brackets? - TurboTax Tax Tips & Videos - Intuit

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I am a sole proprietor. Why was a "blended tax rate" used to calculate my taxes?

Thank you MaryK1101...I think I understand now. So, the Turbotax calculation of my effective tax rate to be 47.9% is not a bug? Not incorrect? And not abnormal? Why does Turbotax call it "Blended Tax Rate" and not "Effective Tax Rate" ?

ErnieS0
Expert Alumni

I am a sole proprietor. Why was a "blended tax rate" used to calculate my taxes?

The two terms mean the same thing. TurboTax chooses to use blended. Personally the term seems more descriptive to me – a mix of all the various taxes you pay. Other people may think effective sounds better.

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