rallybug

But you can then claim 50% of that against your Federal taxes, can't you?

I've just started as a self-employed IT contractor, primarily working for my old employer in the UK, remotely. My wife's pay covers all the bills and probably most of the food, so any money I bring in will be a bonus. I did the same in the UK for a year, so am used to no pay for holidays etc.

Michael

No. Only state and local taxes can be used as a deduction against federal income taxes but there are a large number of deductions that can be used against both state and federal income taxes that is not allowed when not self employed, doesn't have an offset prior to deducting, and doesn't bring AMT (Alternate Minimum Tax) into play.

Some examples that may possibly be deductible are part of utilities, part of house payment or rent, travel to and from work, supplies, capital equipment (usually 100% immediate deduction), vacation trips if associated with a business or conference, health care costs and other benefits if set up with correct type company and follows regulations (LLC or S Corp), possible depreciation of part of house if owned, etc. and all of that reduces the amount of self employment tax owed if below maximum.

rallybug

From the IRS website:

Self-Employment Tax Deduction

You can deduct half of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax.



As I read it, you can deduct 50% of the Self-Employment Tax amount from your gross income, prior to calculating federal income tax.