|
|
| Re: ''Don't let anybody tell you that businesses create jobs'' (1236668) | |||
 |
|||
| Home > OTChat | |||
|
[ Read Responses | Post a New Response | Return to the Index ] |
|
||
|
Re: ''Don't let anybody tell you that businesses create jobs'' |
|
|
Posted by Dave on Sun Oct 26 20:55:11 2014, in response to Re: ''Don't let anybody tell you that businesses create jobs'', posted by AlM on Sun Oct 26 20:00:35 2014. Not correct.Assume you're an employee making $35,000. Employers are required to subtract taxes from an employee's pay and to remit those taxes withheld to the government as a payment of tax on behalf of the employee. Employees then claim a credit for the amount of tax withheld from the actual calculated tax liability when filing a return. Your Social Security and Medicare taxes are $2,677.50 ($35,000 x .0765%). Your Adjusted Gross Income is $32,332.50. Assuming no other deductions, exemptions, etc., if you're in the 25% tax bracket your tax liability is $8,083.13. Self -employment tax is 15.3% of earnings. 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% 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. Now assume you run a business as a sole proprietor. In 2014 your net profit as reported on Schedule C is $35,000. Your net earnings as calculated on Form 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. Your AGI is $35,000 - $2,473 = $32,527. Again, assuming no other deductions, exemptions, etc., if you're in the 25% tax bracket your tax liability is $8,131.75. The difference in federal income tax liability between being self-employed and being an employee in this example is $48.62, or just over one-half of one percent. It's not "almost double" after taxes are calculated. |
|
|
|