Paying too much taxes?

[AS2023]

I have a side gig writing for a company, from which I get a 1099. Nothing is withheld. The amount varies year to year based on how much work I do. Of my 1099 earnings, I pay around 25% tax. Is there any way to reduce how much of this income is taxed at this rate? Thanks.

[maureendudley]

Ideas:

1. Make sure to deduct applicable expenses.

2. Open a SEP-IRA.

[AS2023]

Thanks for the reply! Am I understanding a SEP-IRA correctly that I can deduct 25% of the 1099 income before taxes and put it in the IRA, then only the remainder of the 1099 income is taxed?

What is the process of setting up a SEP-IRA?

Regarding deducting applicable expenses, what can I deduct in my situation? I use my personal computer to write, which is the same computer I use for my FT job and my personal use. I work at home in a space that is multi-use.

Thanks!

[VolvoGirl]

No.  The SEP does not come off your schedule C profit so you still pay the 15.3% SE tax on it. It is an adjustment to regular income on Schedule1 line 16 which goes to 1040 line 10.

What is a SEP IRA
https://ttlc.intuit.com/community/retirement/help/what-is-a-simplified-employee-pension-sep/00/26986

How to enter SEP IRA
https://ttlc.intuit.com/community/retirement/help/where-do-i-enter-my-sep-ira-contributions/00/26783

[KochuK]

Hi AS2023, thanks for posting an event question.

As described, your writing side gig is reported on Schedule C, Profit or loss from Business. Income is from Form 1099 and you report all directly related out of pocket business expenses in generating this income. Net income is then taxed at your marginal income tax rate plus approx. 15.3% self employment tax.

Please examine and maximize all business expenses allowable.

About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)

https://www.irs.gov/forms-pubs/about-schedule-c-form-1040

In additional to report ALL directly related business expenses, you can consider deducting retirement contributions, such as to a SEP IRA, which can be 20% of net earnings. Please also consider health insurance deduction from a plan in your name or your business name.

https://www.irs.gov/retirement-plans/retirement-plans-for-small-entities-and-self-employed 

https://turbotax.intuit.com/tax-tips/home-ownership/deducting-health-insurance-premiums-if-youre-sel... 

All the above would reduce your self employment net income subject to income tax and self employment tax.

Hope the above helps.

Thank you,

Kitty