Last year I made $67,000 and owed $181 in taxes and this year I made $84,000 and owe $5,000. Why so much more than last year and only making $17,000 more?

[katalfaro4]

I work (W2 with taxes withheld) and own a new business. Last year I made $53,000 on my W2 and would have gotten $4k back but then entered my business info which brought my income to $67,000 so it took my $4k refund that I would have got back and I ended up owing $181 in federal. This year my W2 is the same. $53k and with my business I made $84,000. But now I owe $5,000. This doesn't make sense that I only made $17k more but owe $5k? Same thing with the refund. I would have got $4k back but then added in my income from my business and now it shows that I owe federal $5k and state $800. How can this be?

[DawnC0 · Accepted solution]

There are many factors involved, but it doesn't seem that out of range because you owe not only ordinary income tax on the additional $17K but Self-Employment tax also.  The Self-Employment tax is an additional 15.3% of your net profit. You pay ordinary income tax plus the employee and employer's share of social security and medicare taxes.  

Adding your $14K of self-employment income last year cost you about $4K in taxes, so it stands to reason that adding $31K of self-employment this year will cost you more than twice what it did last year in taxes.  Make sure that you are deducting all of your business related expenses; this will help lower your net profit and the amount you pay SE tax on.  See the second link below for some possible tax write-offs for your self-employment income.    

To see how your taxes were calculated, look at your 1040 and your Schedule SE.  See the links below for more information on the Self-Employment tax and how it affects your personal taxes.

https://turbotax.intuit.com/tax-tools/tax-tips/Self-Employment-Taxes/The-Self-Employment-Tax/INF1202...

https://turbotax.intuit.com/tax-tools/tax-tips/Self-Employment-Taxes/Top-Tax-Write-offs-for-the-Self...