Meet Sarah.
She’s a passionate home healthcare provider in McLean, Virginia, who recently left her salaried position to start her own practice. She loves the freedom and fulfillment—but not so much the tax headaches. Like many of JS Morlu’s clients, Sarah found herself face-to-face with one of entrepreneurship’s most misunderstood beasts: the self-employment tax.
If you’re self-employed—whether you’re running a nonprofit, consulting for the government, or freelancing on the side—you’ve likely crossed paths with this confusing but critical component of your financial life. Here’s a deep dive into what it means, how to manage it smartly, and how JS Morlu can help.
What Is Self-Employment Tax, Really?
Think of it as the solo version of payroll taxes. When you’re employed, your boss pays half of your Social Security and Medicare taxes. When you’re self-employed, you are the boss—so you foot both halves.
Here’s the 2025 breakdown:
- Social Security tax: 12.4% (up to $176,100 in net earnings)
- Medicare tax: 2.9% (no earnings cap)
- Additional Medicare tax: 0.9% for high earners ($200,000+ single; $250,000+ married)
Combined, these form the 15.3% self-employment tax applied to 92.35% of your net business earnings.
What Income Is Taxed?
Let’s use Bob, the invisible sock mogul from Vienna, as an example. Bob made $100,000 in net profit last year. The IRS only applies self-employment tax to $92,350 of that amount—then calculates 15.3% on that slice.
But Bob isn’t stuck. Like Sarah, he can reduce his tax liability with smart deductions.
Key Deductions That Help
If you’re self-employed, deductions are your best defense. Some popular tax-saving tools include:
- Home Office Deduction: Deduct part of your rent, utilities, and repairs.
- Vehicle Use: Mileage or actual expenses (think gas, oil, insurance).
- Professional Services: CPA fees (hello, JS Morlu!), legal help, and consulting.
- Marketing: Website, ads, social media promotions.
- Travel & Meals: Deduct 100% for travel and 50% for client meals.
- Education: Courses or certifications to boost your skills.
- Business Insurance: From liability to cyber protection.
- Health Insurance: Deduct premiums for yourself and family as an “above-the-line” deduction—valuable, though it doesn’t reduce your SE tax base.
Self-Employment vs. Being an Employee
Here’s the real difference: autonomy.
Where an employee receives a W-2 and automatic tax withholding, the self-employed hustle comes with independence and responsibility. You control:
- Your income streams
- Your health coverage
- Your retirement plan (think SEP IRA or Solo 401(k))
- Your risk—and your reward
And unlike salaried workers, you must estimate and pay taxes quarterly using IRS Form 1040-ES.
Who’s Exempt From Self-Employment Tax?
Surprise: not everyone pays it. These are some common exceptions:
- S Corporation shareholders (distributions aren’t subject)
- Notary public income
- Limited partners
- Rental income not deemed a business
- Crop-share farming
- Non-resident aliens
- Statutory employees with W-2s
Knowing these can lead to major tax-saving strategies—especially when JS Morlu is helping you structure your business.
Common Challenges and How to Avoid Them
Let’s be honest—many solo entrepreneurs and small business owners stumble here:
- Quarterly Tax Shock: The shift from W-2 withholding to writing quarterly checks is jarring.
- Messy Records: Inaccurate bookkeeping leads to audits and lost deductions.
- Late Payments = Penalties: Failing to pay quarterly can trigger IRS fines.
- Complex Retirement & Insurance Deductions: Knowing what counts for income tax but not SE tax is tricky.
- Business Structure Confusion: An LLC taxed as an S Corp may save thousands in SE tax—but only if done right.
These are the reasons people call us.
Strategic Planning: How JS Morlu Can Help
At JS Morlu, we help high-net-worth individuals, home healthcare providers, government contractors, nonprofits, and small businesses plan beyond tax season. Our services are designed to help you:
- Structure your business to minimize taxes
- Deduct confidently with audit-proof documentation
- Navigate Medicare surtaxes and thresholds
- Balance self-employment taxes with long-term goals like retirement and legacy planning
We’re not just tax preparers—we’re strategic partners.
Take Action Today
If you’re earning income independently, understanding and planning for self-employment tax is non-negotiable. Whether you’re like Sarah, scaling a new venture, or like Bob, optimizing a thriving one—your tax situation deserves expert attention.
Ready to get proactive?
