Tax Planning Strategies To Reduce Self Employment Tax

June 18th, 2021 at 6:51 AM

What happens when lawmakers enact a new tax?

It starts small.

It looks easy.

In 1935, the self-employment tax topped out at $60. Those 1935 lawmakers must be twirling in their graves with the new rules for 2021, which levy the following taxes:

Beware

You know the expression “Don’t let the camel’s nose get under the tent”? It applies here.

Look at what has happened to self-employment taxes since they first came into being in 1935, assuming you earn at the base amount:

To put the rates in perspective, say you are single and earn $150,000. On the last dollar you earned—dollar number $150,000—how much federal tax did you pay? The answer in round numbers—39 cents (14 cents in self-employment and 24 cents in federal income taxes).

Wow! That’s a lot. Then, if you live in a state with an income tax, add the state income tax on top of that!

Mark S. Fineberg, CPA

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