Self-employment tax calculation

[kimmywho]

Hi, Turbotax seems to be figuring my SE tax from my total income pre-deductions. From everything I am reading, it should be figured from net earnings after deductions. Wouldn't it be the 'taxable income' that should be used? Am I missing something here? 

[Opus 17]

Did you enter your business expenses as deductions in the business section (schedule C) or the personal section (schedule A itemized deductions)?

[kimmywho]

I'm looking at the Federal 1040 preview and am only seeing schedule 1,2, and 3. I am utilizing the Self-employed version of turbo tax and completed a lengthy business related expense portion but it ultimately recommended the standard deduction. Total income 64,225 and with deductions/credits the taxable income at 32,710. SE tax 9075. 

[Opus 17]

You pay SE tax on your net income from self-employment.  Net income from self-employment is not reduced by personal deductions like the standard deduction, mortgage interest deduction, state and local taxes and so on.

You file a schedule C to report business income and expenses.  Your net profit goes to schedule SE to pay SE tax.  Your net profit also goes to the main form 1040 where it is combined with other income, personal deductions, dependents and credits, to determine your income tax.  Then your income tax and SE tax are added together to determine your final tax amount.  

It sounds like your net income from your business is $64,000 and you have deductions that reduce your taxable income to $32,000.  You will pay income tax on $32,000 and self-employment tax on $64,000.  That's just how it works.

Remember that SE tax is the equivalent of social security and medicare.  If you are a regular employee, you pay 7.65% and your employer matches it with 7.65%, and you pay that tax off the top, regardless of other deductions or dependents.  When you are self-employed, you pay both halves, but it still comes off the top.

If you think your net business income (gross income minus business expenses) should be less than $64,000, then we can think about what went wrong with that.  Business expenses and personal expenses must be kept separate.  But if your net business income after expenses is $64,000, then you seem to be on the right track. 

[VolvoGirl]

Don't confuse itemized deductions on schedule A with your business expenses/deductions on schedule C. They are separate. For Schedule A personal deductions, you get to take your itemized deductions or the standard deduction, whichever is larger.  Itemized deductions are things like Medical, Gifts to Charity, State Income Taxes Paid, Mortgage Interest, Property Taxes, Car Registration fees, etc.

You get to take both,  your business expenses AND the Standard Deduction (or your personal Itemized Deductions).  And you have to enter your business expenses.  Be aware, if you have self employment income you can get in trouble for not reporting all your expenses to qualify for the EIC.

Did you enter your self employment expenses on Schedule C or under Deductions?

[kimmywho]

The 64k figure is total income pre expenses. AGI is 59xxx. My business related expenses came to approximately $11k and It recommended a standard deduction (18xxx) in lieu of itemized expenses after I completed the section for business related expenses. Does the Self-employed version (I am a PLLC/disregarded entity) of turbo tax offer a schedule C or take this into account? Or, is this something I have to complete separately? I appreciate your time! 

[VolvoGirl]

Yes the Self Employed version fills out Schedule C!  Sounds like you entered your expenses into Schedule A not C.  What is a PLLC.  Are you a Single Member LLC?.  

Didn't you enter the expenses on Schedule C to reduce your Net Profit?  Look at Schedule C.   You pay self employment tax on the Net Profit AFTER expenses.  Business expenses are completely separate from your personal Itemized Deductions on Schedule A.   

How to enter self employment expenses

https://ttlc.intuit.com/community/entering-importing/help/where-do-i-enter-my-self-employment-busine...

Before filing,  You can preview the 1040 or print the whole return

https://ttlc.intuit.com/community/accessing/help/how-do-i-preview-my-turbotax-online-return-before-f...

[Opus 17]

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@kimmywho wrote:

The 64k figure is total income pre expenses. AGI is 59xxx. My business related expenses came to approximately $11k and It recommended a standard deduction (18xxx) in lieu of itemized expenses after I completed the section for business related expenses. Does the Self-employed version (I am a PLLC/disregarded entity) of turbo tax offer a schedule C or take this into account? Or, is this something I have to complete separately? I appreciate your time! 

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You have confused personal and business expenses.  When you are self-employed, all your business expenses go on schedule C (mileage, supplies, assets, etc.)   If using Turbotax Online, you must be upgraded to the Self-Employed version.  If you are in the Deluxe or Premier version, you can report 1099-NEC income but you can't deduct business expenses.

You should see screens like this.

I think you probably would be best off to clear your return and start over. 

[kimmywho]

Thanks so much for the guidance! It says I am utilizing the 'self-employed' version of Turbotax and it doesn't identify the forms as A or C nor offer a separate section for personal vs business. I must have missed something. Thanks again!