The Money with Katie Show #4: SELF-EMPLOYMENT TAXES: How to Save on Taxes When You're Self-Employed
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Oct 27, 2021 Self-employed individuals can supercharge their retirement savings with Solo 401(k)s and SEP IRAs. Discover where self-employment tax originates and which retirement account suits your income best. Learn strategies to minimize that hefty 15.3% self-employment tax and uncover how to potentially save over $10,000 on your taxes. Dive into easy calculations for contribution limits and explore a new approach to obtaining Roth exposure without the Backdoor Roth IRA. It's packed with tips to help you navigate the financial landscape with confidence!
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Self-Employment Gives A Retirement Edge
- Self-employed people can contribute far more pre-tax than typical employees using special retirement accounts.
- Katie Gatti-Tossan calls this a major advantage of self-employment for retirement saving.
Why Self-Employment Tax Is 15.3%
- Self-employment tax is primarily the full employer+employee FICA, totaling 15.3% to cover Social Security and Medicare.
- Katie explains you pay the whole amount because you are both employer and employee when self-employed.
Use SEP IRA And The 20% Quick Formula
- Use a SEP IRA to defer large amounts of self-employment income pre-tax; 2021 maximum was $58,000.
- Multiply net business income by 20% to estimate your SEP IRA contribution allowance easily.