employee_vs_self-employed - Average tax rate 26.75 31.25...

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In both cases assume the taxpayer is single and has a 28% marginal tax rate (2009 rates and amounts are used) Employee Sole proprietor Salary 100,000.00 Schedule C profit 100,000.00 Less: 1/2 SE tax (7,064.78) AGI 100,000.00 AGI 92,935.23 Less: standard deduction (5,700.00) Less: standard deduction (5,700.00) Less: personal exemption (3,650.00) Less: personal exemption (3,650.00) Taxable income 90,650.00 Taxable income 83,585.23 Difference Federal income tax 19,102.00 Federal income tax 17,123.86 (1,978.14) FICA tax (7.65% salary) 7,650.00 SE tax (computedbelow) 14,129.55 6,479.55 Total tax 26,752.00 Total tax 31,253.41 Additional tax 4,501.41 4,501.41
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Unformatted text preview: Average tax rate 26.75% 31.25% 4.50% EMPLOYEE vs. SOLE PROPRIETOR (total tax/gross income) SE tax computation SE earnings (from Schedule C) 100,000.00 Multiply by: 92.35% 92,350.00 Multiply by: 15.3% (7.65% + 7.65%) SE tax 14,129.55 Multiply by 1/2 50% SE deductible for AGI 7,064.78 Bottom line: Even though the self ‐ employed taxpayer is responsible for both the employer and employee share of FICA taxes (7.65% each), the increased tax burden is "only" 4.50% since: (1) 92.35% of earnings are subject to SE taxes and (2) 1/2 of SE taxes are deductible for AGI....
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