Contract labor

[DDALTON1]

I Paid a contractor $17,000 but Turbo Tax only gave me a deduction of $4000. Why did I not get the full amount? 

[VolvoGirl]

You don't have the 17,000 on Schedule C line 11?  Or where are you seeing only a 4,000 deduction?  Did your Net Profit or Loss only change by 4,000?

[DDALTON1]

When I entered the amount paid to sub-contractors ($17,000), the amount of my tax liability only decreased by $4,000. 

[JohnW152 · Accepted solution]

That sounds correct.

A $17,000 deduction won't result in $17,000 less taxes. 

A $4,000 tax decrease represents a tax rate of roughly 24% on the $17,000 deduction, which is certainly possible.

[VolvoGirl · Accepted solution]

Yes that could be right.  It's not a direct reduction of tax.  You just reduced your Net Profit.  It only reduces the self employment tax by about 15% of the 17,000.   You need to look at your return and the SE tax before and after entering the labor.  It also reduces the regular income tax you pay on the Net Profit by your tax bracket.  And by reducing your income you may not be getting as many credits as before.