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February 22, 2023
Question

Can I edit the self-employed deduction claim of 100% to 50%?

  • February 22, 2023
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February 22, 2023

What do you mean by editing the self-employed deduction claim of 100% to 50%. The self employed deduction claim is 50% to begin with and is deducted from your adjusted gross income. See HERE and scroll down to "Good News" to see how this works.

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March 11, 2025

Hi Abraham. I was reading about this but I am still confused:

Good news

When figuring self-employment tax you owe, you get to reduce self-employment income by half of the self-employment tax before applying the tax rate. Say, for example, that your net self-employment income is $50,000. That's the amount you report as taxable for income tax purposes on Form 1040.

But when figuring your self-employment tax on Schedule SE, Computation of Social Security Self-Employment Tax, the taxable amount is $46,175. Not paying the 15.3 percent tax on the $3,825 difference in this example saves you $585.

More good news

You can claim 50% of what you pay in self-employment tax as an income tax deduction. For example, a $1,000 self-employment tax payment reduces taxable income by $500. In the 25 percent tax bracket, that saves you $125 in income taxes. This deduction is an adjustment to income claimed on Form 1040, and is available whether or not you itemize deductions.

An example

  • You run a catering business as a sole proprietor.
  • In 2024 your net profit as reported on Schedule C is $35,000.
  • Your net earnings subject to self-employment tax as calculated on Schedule SE would be $32,323 ($35,000 x 0.9235).
  • Your self-employment tax would be $4,945 (32,323 x 0.153) and you would report that amount on Form 1040 in the "Other Taxes" section.

Then you would report one-half of your self-employment tax, $2,473, ($4,945 X .50) on Form 1040 as an adjustment to income, which reduces your Adjusted Gross Income and the amount of income tax you owe.

 

Is this something TT do automatically?. I am self employed, I have always done my taxes just adding gross income, then expenses (office, supplies, communications, etc.) and after that TT gives me the estimated tax and that's it, but after reading the paragraphs above it seems that I should report my income dividing it in two different  sections or at least that is what I understand. Thanks in advance for your help.

March 12, 2025

No, TurboTax does that automatically.  If you check your prior year returns you will find it there and be all set.

 

@Daniro 

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