Minimizing Self-Employment Tax

Discussion in 'Bookkeeping & Taxes' started by april, Feb 11, 2011.

  1. april

    april New Member

    I am a small business owner. Now that <a href="" target="_blank" title=", where we compare tax software for you.">tax season</a> is here, I was wondering what is best way to minimize exposure to self employment tax?
    I really appreciate any insight!
  2. Jim CPA

    Jim CPA New Member

    I'm assuming if you're concerned about paying self-employment tax that you're a sole proprietor or partnership. What you probably want to do is to form an s-corporation. You'd need to pay yourself a reasonable salary for the work you do and you'd still have to pay regular income tax on all your income, but you would avoid paying self-employment tax on the profits your business generates.
    To do this, you'd need to form a corporation in your state, which you can do at the Secretary of State's website where you live. After that, you'd file a Form 2553 with the IRS, to declare yourself an s-corporation. There are lots of tricky in's and outs regarding this, so you should definitely seek professional help before doing anything.
    Hope that helps.
    Charles T likes this.
  3. Ady

    Ady New Member

    Hi April,
    As you might be aware, Self-employed taxpayers are permitted to deduct the employer's portion of Social Security taxes from their returns.
    So, one of the most viable ways is to increase your business expenses. It reduces your net income in all and lowers your taxes accordingly. You can invest in certain fixed assets like buildings, land, trucks, and other valuables that are used for your business.
    Another method in addition to this is forming an S-corporation. If your clients pay you money through S-corp, that would not add to your net income.
    Charles T likes this.

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