Self-Employment Tax & Maximizing Deductions — A Guide for Creators and Business Owners
If you’re self-employed—whether you’re a YouTuber, Shopify store owner, TikToker, filmmaker, dentist, or local business owner—understanding self-employment tax and how to maximize deductions is key to keeping more of your earnings. Let’s break it down clearly and practically.
What Is Self-Employment Tax?
Self-employment tax covers the Social Security and Medicare taxes that traditional employers usually split with employees. As a self-employed individual, you’re responsible for both halves—totaling 15.3%: 12.4% for Social Security and 2.9% for Medicare.
- Social Security applies to the first $168,600 of your net self-employment income in 2024.
- Medicare applies to all net self-employment income, with an additional 0.9% surtax once your income exceeds certain thresholds (e.g., $200,000 for single filers, $250,000 for married filing jointly).
- You’re taxed on 92.35% of your net earnings (gross income minus business expenses).
Deduction: You’re Not Stuck with 15.3% of Your Income
The IRS allows you to deduct half of the self-employment tax when calculating your adjusted gross income (AGI). That effectively gives you a tax break equivalent to 7.65% of your net self-employed income.
Example:
If your net self-employment income is $50,000:
- Tax applies to $46,175 (92.35% of $50,000)
- Self-employment tax: $46,175 × 15.3% ≈ $7,065
- You deduct half ($3,532) from your taxable income—reducing your income tax burden.
Other Key Deductions for Self-Employed Professionals
Beyond self-employment tax relief, you have many additional opportunities to lower your taxable income:
- Health Insurance Premiums — Deduct 100% of the cost for yourself, spouse, and dependents if you’re not eligible for employer-sponsored coverage.
- Startup Costs — Deduct up to $5,000 in startup and organizational costs (phased out over $50,000).
- Business Asset Deductions — Use Section 179 expensing or bonus depreciation for immediate write-offs.
- Qualified Business Income (QBI) Deduction — Deduct up to 20% of your qualified business income, subject to income thresholds.
- Other Business Deductions — Home office, office supplies, travel, marketing, courses, insurance, vehicle expenses, etc.
Planning Tip You Shouldn’t Miss
High-income self-employed individuals may benefit from forming an S-Corp, which allows for a reasonable owner salary and distributions—potentially reducing overall taxable income and payroll tax liabilities.
Summary Table
| Deduction Type | Benefit |
| Half Self-Employment Tax | Lowers taxable income by ~7.65% of net income |
| Health Insurance Premiums | 100% deductible if self-employed |
| Startup Costs | Up to $5,000 deduction |
| Section 179 / Bonus Depreciation | Immediate write-off of business assets |
| Qualified Business Income (QBI) | Up to 20% deduction |
| S-Corp Strategy | Potential tax savings for high-income earners |
Examples:
1. Half Self-Employment Tax – Lowers taxable income by ~7.65% of net income
Example: A freelance filmmaker earns $80,000 net. They pay self-employment tax on the full amount, but can deduct $6,120 (half the SE tax) from taxable income, reducing income tax owed.
2. Startup Costs – Up to $5,000 deduction in the first year
Example: A new Shopify store owner spends $3,000 on logo design, website setup, and legal fees before launch. They can deduct the full $3,000 as startup costs.
3. Section 179 / Bonus Depreciation – Immediate write-off of business assets
Example: A dentist buys $25,000 worth of new dental chairs and equipment. Instead of spreading the deduction over several years, they write off the full $25,000 in the purchase year.
4. Qualified Business Income (QBI) Deduction – Up to 20% deduction on eligible business income
Example: A YouTuber with $100,000 in qualified income may deduct up to $20,000 from taxable income, depending on total income and IRS rules.
5. S-Corp Strategy – Potential tax savings for high-income earners by splitting salary & distributions
Example: An Amazon seller earning $150,000 elects S-Corp status, pays themselves an $80,000 salary, and takes $70,000 as distributions—saving thousands in self-employment taxes.
Need Tax Strategy Help?
For personalized support tailored to your business—whether you’re a YouTuber, Shopify merchant, Amazon seller, TikToker, filmmaker, dental practice, beauty salon, equipment rental company, or high-net-worth individual—we’re here to help.
As your trusted CPA for Creators, CPA for Online Commerce, CPA for YouTubers, CPA for TikTokers, Shopify Store CPA, Amazon Business CPA, Dentist CPA, and CPA for High Net-Worth Individuals, we know how to optimize your tax strategy.
For more information about our tax planning services visit our website.
Velin & Associates, Inc
8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.