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Have self-employment taxes slowed your success with CPA?

by Shazadi
14 replies
Hi all,

I know this isn't really the exciting or sexy side of CPA marketing, but how have those of you who have made decent earnings with CPA dealt with the increased tax bracket? If you're entirely self-employed at this point, how much has having to cover your own health insurance cut into your profits?

I'm in the U.S. so I'm speaking from that perspective, though international affiliates feel free to weigh in. I work freelance but also have a part-time agency job that takes care of much of my insurance, and I shudder to think that I'd have to pay ~$600 to do it myself. I know next year we're apparently getting more (and lower cost) options, but still.

Self employment tax is 15%. Another 15% for federal income tax. Another 10% state tax. That's 40% total, and it just seems crazy. Have business-related deductions softened the blow or are you just earning enough at this point that it isn't a big deal?

Thanks for sharing any experiences.
#cpa #cpa marketing #self employment #selfemployment #slowed #success #taxes
  • Profile picture of the author PPC-Coach
    Taxes are nuts, I'm in Canada and we pay a lot. But they're a part of life and you just deal with them. They're not fair and yes you could get a job and not pay as much but the rewards are probably not going to be as much either.

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    • Profile picture of the author Shazadi
      Originally Posted by PPC-Coach View Post

      Taxes are nuts, I'm in Canada and we pay a lot. But they're a part of life and you just deal with them. They're not fair and yes you could get a job and not pay as much but the rewards are probably not going to be as much either.
      I hear you. I'm just getting into CPA and although I know it's not a "get rich quick scheme" I'm hoping to make enough by the end of the year to support myself through it alone. Taking the tax situation into consideration has been a bit sobering though, in that I'll have to earn more to actually *make* the same amount of money now.

      I agree though, it'll be worth it!
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  • Profile picture of the author Martyfl
    10% state tax! Wow, that hurts. I live in a state with no income tax and did not realize how much state taxes are.

    You could incorporate and take out some of the money as a distribution. You will avoid all but the income taxes. You need to be careful to not make it seem like you are trying to avoid the FICA. Just make sure you pay yourself a salary. Keep your personal and business expenses separate. Do not co-mingle the money.

    A subchapter-s or LLC would do the trick. Talk to your accountant for advice that pertains to your state.
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    • Profile picture of the author Shazadi
      Originally Posted by Martyfl View Post

      I live in a state with no income tax and did not realize how much state taxes are.
      Ironically I don't either (we have B&O tax, which thankfully isn't as bad) but my husband and I are considering moving soon and I didn't want to underestimate. Some states aren't that bad at all, but others are quite high even on a relatively low income (8.5% for > $20k in Maine).

      Originally Posted by Martyfl View Post

      You could incorporate and take out some of the money as a distribution. You will avoid all but the income taxes. You need to be careful to not make it seem like you are trying to avoid the FICA. Just make sure you pay yourself a salary. Keep your personal and business expenses separate. Do not co-mingle the money.

      A subchapter-s or LLC would do the trick. Talk to your accountant for advice that pertains to your state.
      Thanks so much for this information - and PPC-Coach for mentioning it as well. This definitely sounds like an intelligent move going forward. I'm going to have to find a better accountant soon because the lady I've been using has only given me "business office" deductions as an option. I mean, I'll take what I can get, but I was thinking something larger scale...

      And as for Dubai, that's awesome. I'm not ready to make that big of a move, but going cross-country is certainly not out of the running in the long-term. Of course, more than tax considerations would be going in that decision!
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  • Profile picture of the author PPC-Coach
    In Canada, I'm incorporated so I pay tax on my corporation then pay personal tax on the money taken out. YAY!

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  • Profile picture of the author PPC-Coach
    Did you really? That's a big move, cool.
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  • Profile picture of the author NoobSensei
    Originally Posted by LauraKryza View Post

    Hi all,

    I know this isn't really the exciting or sexy side of CPA marketing, but how have those of you who have made decent earnings with CPA dealt with the increased tax bracket? If you're entirely self-employed at this point, how much has having to cover your own health insurance cut into your profits?

    I'm in the U.S. so I'm speaking from that perspective, though international affiliates feel free to weigh in. I work freelance but also have a part-time agency job that takes care of much of my insurance, and I shudder to think that I'd have to pay ~$600 to do it myself. I know next year we're apparently getting more (and lower cost) options, but still.

    Self employment tax is 15%. Another 15% for federal income tax. Another 10% state tax. That's 40% total, and it just seems crazy. Have business-related deductions softened the blow or are you just earning enough at this point that it isn't a big deal?

    Thanks for sharing any experiences.
    I can't really speak to your state taxes, but the federal self-employment tax is designed to just replace the payroll tax. In 2013 it's 15.3%, which is the same as the total payroll tax if you were working a job (12.4% for social security and 2.9% for Medicare). If you're self-employed and you buy your own health insurance, I think you can deduct it as a business expense.

    I'm not sure how it works out in practice if you have substantial income from both a self-owned business and from a salaried job, but the idea is that the tax code is supposed to be agnostic between those two options.

    Good luck with it; the federal tax code is insanely complicated.
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  • Profile picture of the author ChrisBa
    Originally Posted by LauraKryza View Post

    Hi all,

    I know this isn't really the exciting or sexy side of CPA marketing, but how have those of you who have made decent earnings with CPA dealt with the increased tax bracket? If you're entirely self-employed at this point, how much has having to cover your own health insurance cut into your profits?

    I'm in the U.S. so I'm speaking from that perspective, though international affiliates feel free to weigh in. I work freelance but also have a part-time agency job that takes care of much of my insurance, and I shudder to think that I'd have to pay ~$600 to do it myself. I know next year we're apparently getting more (and lower cost) options, but still.

    Self employment tax is 15%. Another 15% for federal income tax. Another 10% state tax. That's 40% total, and it just seems crazy. Have business-related deductions softened the blow or are you just earning enough at this point that it isn't a big deal?

    Thanks for sharing any experiences.
    Unfortunately this is the cost of doing business and there is nothing you can do about it (and don't try to lie to the government, I made an unintentional tax error once, there are fines, penalties, interest, etc). My best recommendation is get a good accountant. A good one will save you lots of money. A great one will save you even more.
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  • Profile picture of the author chintz24
    I am in India, moved to Cyprus.
    Pay only 2k a year there. Thats the registration fees.
    No taxes there!
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    12 premium domains for sale.
    Email connect@chintanshah.xyz

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  • Profile picture of the author jaggyjay
    Seems like you need a very, very, good tax accountant or tax lawyer. I remember reading that Warren Buffet, the billionaire, pays less taxes than the average blue-collar job worker. Go figure :rolleyes:
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