Understanding Self-Employment Taxes: A Simple Guide for Solopreneurs
As a solopreneur, you wear many hats—CEO, marketer, customer service, and yes, even your own accountant. One of the biggest challenges of running your own business is managing taxes, especially self-employment tax. But don’t worry, we’re breaking it down into simple tax tips so you can confidently handle your tax obligations and keep more of your hard-earned money.
What is Self-Employment Tax?
Self-employment tax (SE tax) is the Social Security and Medicare tax that individuals who work for themselves must pay. When you’re an employee, your employer covers half of these taxes, but as a solopreneur, you’re responsible for the full amount—15.3% of your net earnings.
Social Security tax: 12.4%
Medicare tax: 2.9%
Additional Medicare tax: If you earn more than $200,000 (single) or $250,000 (married filing jointly), you’ll pay an extra 0.9%.
How to Calculate Self-Employment Tax
To calculate your self-employment tax:
Determine your net self-employment income (total revenue minus business expenses).
Multiply that number by 92.35% (this accounts for the fact that you can deduct the employer portion of self-employment tax).
Multiply the result by 15.3% to get your self-employment tax.
For example, if your net self-employment income is $50,000:
$50,000 × 92.35% = $46,175
$46,175 × 15.3% = $7,060 (your SE tax)
The good news? You can deduct half of your SE tax from your taxable income!
Key Deductions to Lower Your Tax Bill
The best way to reduce your self-employment tax burden is by maximizing deductions. Here are some common tax deductions you may qualify for:
Home Office Deduction – If you use part of your home exclusively for business, you can deduct a portion of your rent, mortgage, and utilities.
Health Insurance Premiums – If you pay for your own health insurance, you may be able to deduct the full cost.
Business Expenses – Any expenses related to running your business, including software, marketing, professional fees, and supplies.
Vehicle Expenses – If you use your car for business, you can deduct mileage or actual vehicle expenses.
Retirement Contributions – Contributing to a Solo 401(k) or SEP IRA not only helps you save for retirement but also reduces taxable income.
Education & Training – Courses, books, and conferences related to your business are deductible.
Self-Employment Tax Deduction – Remember, you can deduct 50% of your self-employment tax!
Paying Estimated Taxes
Since self-employed individuals don’t have taxes withheld from their pay, the IRS typically requires quarterly estimated tax payments. The due dates for 2025 are:
April 15
June 16
September 15
January 15 (of the following year)
Missing these deadlines can result in penalties, so it’s essential to stay on top of payments.
Final Thoughts
Taxes may feel overwhelming, but with the right knowledge and preparation, you can manage them efficiently. Keep track of your income and expenses, take advantage of deductions, and make estimated tax payments on time. If needed, working with a tax professional can save you money in the long run.
Need personalized guidance on managing your business finances? Let’s chat! Book a free 15-minute Q&A session here to get your tax questions answered.
