Self Employment Tax Rates 2017 & How to Lower Your Tax Bill

 

From FitSmallBusiness.com,  offers guidance on self employment taxes and how to lower your taxes.  Crystalyn writes:

Two Ways to Reduce Your Self Employment Tax

Two ways you can reduce your self employment tax without getting the attention of the IRS are to take more business deductions and change your business structure to an S-corp or an LLC taxed as an S-corp. Let’s take a look at each one in a little more depth.

1. Business Deductions

If you take advantage of all of the deductions available to you, then you can reduce your taxable income, which will therefore reduce your income tax liability and self employment tax liability. Below is a list of the most common business deductions that you can take:

Be sure to keep good records just in case you ever have to prove to the IRS these were legitimate business expenses. To learn more about tax savings that you may be missing out on, read our Business Tax Saving Tips article.

2. Business Structure

If you decide to change your business structure to an S-corp or an LLC taxed as an S-corp, this could reduce the amount of self employment tax that you pay because corporations have more allowable deductions, and you could pay yourself a salary so that you only pay half of your social security and Medicare tax and the corporation pays the other half.

However, there are several requirements that must be met to qualify as an S-corp. Be sure to consult with a tax professional to determine if changing your business structure makes sense for your business.

Self Employment Taxes for Corporations

There are two types of corporations, S-corporation (S-corp) and C-corporation (C-corp). Both types of corporations protect shareholders from being sued so that they are not at risk of losing their personal assets if a lawsuit is filed against the business.

For tax purposes, an S-corp is not taxed, so all business income and expenses are passed down to the shareholders and reported on Schedule K-1. Therefore, the owner of an S-corp would have to include any income reported on Schedule K-1 as Net Self Employment income on Schedule SEto calculate self employment tax. To learn more about what taxes an S-corp is subject to check out our S-corp tax guide.

A C-corp is considered a separate legal entity for tax purposes. If you’re the owner of a C-corp, you can be taxed twice, once as a corporate entity and then again on any distributions paid to you in the form of dividends. You are required to pay income tax on any distributions that you receive from the business. However, this income is not subject to Self-Employment tax.

As the owner of a C-corp, you are subject to self employment tax if you receive compensation that is not reduced by social security and Medicare taxes. In this case, the corporation would issue a 1099-MISC form to you, and you would have to report that income as self employment income on Schedule SE. In general, most owners of a C-corp receive a salary like regular employees so they don’t pay self employment taxes.

Source: Self Employment Tax Rates 2017 & How to Lower Your Tax Bill

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