I probably should be directing this question to my member of Congress (actually, I did write my Congressman, and if I get an answer, I'll post it up here... ), but...

Is there any particular reason why the Feds have decided that 1099-Misc income should be taxed at a rate around 37.7%... or am I doing something wrong with my Schedule C? And no, my normal income tax rate is nowhere NEAR 37.7%. :mad: (Don't I wish I made that much money- so much for helping out small business owners!)

Obviously this isn't incredibly time sensitive - I would just like some information... if anyone knows.

You have included in your 1099 taxes yourself employment taxes which is on a paycheck your social security taxes. In your paycheck you pay 7.5 percent social security tax and the company matches it with another 7.5 percent that you don't see them paying.

So for your 1099 income you have to pay that entire 15 percent on top of your regular income tax earnings. So the tax rate is not really higher but you are having to pay not only income tax but also self employment tax for the full amount.

<sarcasm mode = on>

Oh, that's just wonderful... super!

<sarcasm mode = off>

But seriously, thanks for taking the time to answer.

Fr Chuck has it right!

Welcome to the wonderful world of U.S. taxes!

Yes most people going into the wonderful world of self employment see that large check coming in and have no idea that about 40 percent of it needs to be put back for taxes.

I have a idependent contactor that worked for me about 1/2 of this year who is now in shock mode also.

And you are welcome, what people who are used to working for someone else, companies pay unemployment taxes on the employee the self employed does not even have umemployment rights, the company pays 1/2 of the social security tax, a self employed person has to pay it thierself in full. And of course a self employed person does not have a company to pay a portion of their health insurance and if they are ill, may not even get health insurance.

The system is not equal for a self employed person

Fr. Chuck:

All that you say is true. However, if you know this going in, you can negotiate a higher "wage" to compensate.

On the other hand, is anyone remembering that self-employed folks get to deduct 1/2 of themselves employment tax when determining their income tax? The self employed may also deduct expenses directly against income as opposed to an employee who may take work related deductions in excess of 2% of AGI.

So it is not all bad for the self employed.

This is true. There are also the various retirement programs (SEP, SIMPLE, etc.) that self-employed people can use and often do not.

Someone who manages their money and works with a competent tax pro can mitigate these taxes rather well. It takes time and hard work, but it CAN be done!

Quote:

---

Originally Posted by AtlantaTaxExpert

This is true. There are also the various retirement programs (SEP, SIMPLE, etc.) that self-employed people can use and often do not.

Someone who manages their money and works with a competent tax pro can mitigate these taxes rather well. It takes time and hard work, but it CAN be done!

---

I know a financial adviser through my main job. I'll make sure to ask him about them. Thanks for the tip - though we're talking about extra-curricular income of usually under $3000 annually. Thus far, I've managed to shave a few dollars off with business related deductions - generally, I do write off any related materials (in my case, audio equipment) that I use in my self-employment off my Schedule C income.

It's almost like I need to spend any extra money I get in from it on the business so I operate at either "break even" or only a slight profit to get out from under my tax obligations... so, in a way, I'm supporting my technology habit with my side work. :D

Sounds like a plan to me!