In addition to Federal and State taxes, your earnings from self-employment are taxed at 15.3%. This is an incredible burden to small businesses. At our practice we witness taxpayers with 1099s who have worked hard all year, and end up paying self-employment taxes over $10,000 a year... This is just bad planning.
Last tax season, a new client arrived with a 1099 for $120,000 from his bathroom tile business. I knew there would be a major problem….the recipient of the 1099 was the taxpayer himself. That is correct. The 1099 had the taxpayer’s Social Security number in the Recipient TIN box. Double Yikes! After deducting business expenses we were able to get his net income to $80,000.
$80,000 @ 15%= way more money than he should pay.