Self-Employment Tax: What It Is and How to Reduce It

SE tax is the biggest surprise for first-year self-employed filers. You can be in the 12% income-tax bracket and still owe over 25% total once SE tax is added. Knowing how it works lets you plan — and legally reduce it.

• How it is calculated. Take net profit from Schedule C. Multiply by 92.35% (this accounts for the employer-half deduction). Multiply the result by 15.3%. That is your SE tax.
• Legal ways to reduce it. Track every legitimate business expense — every $100 of expense saves ~$15 of SE tax plus income tax

Frequently asked questions

Does an LLC avoid SE tax?

No. A single-member LLC is taxed as a sole prop by default — all net profit is subject to SE tax. The savings come from electing S-Corp status, not from the LLC itself.

When does S-Corp make sense?

Once net profit is consistently $60–80k+. Below that, the added payroll and accounting cost usually wipes out the SE-tax savings.

More taxes guides

• Sales Tax for Service Businesses: A Plain-English Guide
• Sales Tax Nexus: When You Owe Tax in Another State
• Resale Certificates: When and How to Use One
• Quarterly Estimated Taxes: A Survival Guide for the Self-Employed
• How Much to Set Aside for Taxes (and Where to Put It)
• Schedule C Deductions: The Master Checklist for Service Businesses