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        ³    SELF-EMPLOYMENT TAX ON BUSINESS INCOME    ³
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@Q      "The difference between a taxidermist and a tax
@Q       collector is that the taxidermist leaves the
@Q       skin." -- Ancient American proverb

The self-employment tax is a very painful and onerous tax
on individuals who earn income from self-employment (we
speak from personal experience).  As though one were not
already afflicted with federal income taxes (and state in-
come taxes in many states) and other business taxes too
numerous to mention, the self-employment tax takes another
15.3% (1993 rate) of your income, right off the top, and
only half of it is deductible for income tax purposes.
@IF120xx]Since your business is not incorporated, it is quite likely
@IF120xx]that you will be subject to self-employment tax on your in-
@IF120xx]come from your business, @NAME.

Ouch!  Furthermore, only your business deductions, plus an
amount equal to the S/E tax on half of your S/E income, are
allowable in reducing the self-employment income that is
subject to this cruel tax.  All those nice deductible items
we all use to reduce our income tax, like home mortgage in-
terest, real estate taxes, state income tax, Keogh plan or
IRA deductions, etc. are of no benefit whatsoever in reduc-
ing the bite of the self-employment tax.

@IF121xx]NOTE REGARDING @NAME:
@IF121xx]-----------------------------------------------------------
@IF121xx]Because your business is incorporated, you need not be too
@IF121xx]concerned with the self-employment tax, unless you receive
@IF121xx]other non-wage (earned) income in an individual capacity,
@IF121xx]such as director's fees for serving on your corporation's
@IF121xx]board of directors.
@IF121xx]-----------------------------------------------------------
@IF121xx]
The self-employment tax is the non-employee portion of the
Social Security tax-raising system.  It is what we pay now
as self-employed persons (in lieu of the FICA taxes paid
by employees--and their employers) in order to earn Social
Security benefits at some distant date in the future, when
we retire--by which time our politicians will have surely
squandered every last $billion of the temporary surpluses
the Social Security fund is supposed to generate for the
next 15 or 20 years, leaving nothing but IOU's for us in
the nation's busted piggy bank.

Perhaps the only good thing to be said for this tax is that
the full 15.3% tax only applies to the first $57,600 of
one's self-employment income.  Only the medicare portion of
the tax (2.9% rate) applies to income above $57,600, on up
to $135,000 of self-employment income.  The maximum S/E tax
liability for an individual is thus $11,057 in 1993, up from
a maximum of $10,658 in 1992.  (Actually, you must have
self-employment income of somewhat over $135,000 to pay the
maximum S/E tax, since up to half of the hypothetical S/E
tax on total S/E income is deductible from S/E income.)

Before 1990, you could usually save money on this particu-
lar tax by incorporating your business.  As a corporation,
any salary you paid yourself before 1990 was subject to
both individual and corporate FICA taxes at a combined tax
rate of slightly higher than the rate for S/E tax, but the
higher FICA rate was mitigated by the fact that the employ-
er's half of the FICA tax was all deductible for corporate
income tax purposes, which reduced the net after-tax cost
of the FICA considerably, particularly if the corporation
was in a high corporate tax bracket.

This difference in tax treatment disappeared in 1990, when
both the S/E tax and the combined FICA tax rates were in-
creased to 15.3%.  But now one-half of the S/E tax has be-
come deductible, both for income AND S/E tax purposes, thus
putting self-employed persons on the same footing as incor-
porated ones for Social Security (FICA and S/E) tax pur-
poses.

Note that for some kinds of businesses, such as rentals,
there is no self-employment tax, so that there can be a
considerable advantage in operating those types of busi-
nesses as sole proprietorships or partnerships, rather than
corporations.  (Any wages you pay yourself as a corporate
employee are subject to FICA tax, regardless of the source
of the corporation's earnings used to pay you such wage or
salary.)  Interest income is also exempt from S/E tax.
@IF159xx]Your firm is engaged in @BUSTYPE, so you most
@IF159xx]likely aren't subject to self-employment tax on any earnings
@IF159xx]that are generated by @NAME.
@IF159xx]
@IF159xx](Regardless of whether or not the business is incorporated.)
@IF159xx]
@IF159xx](@NAME is a @ENTITY.)

There is no separate tax return for paying self-employment
tax.  You simply compute the tax on Schedule SE and attach
it to your federal individual income tax form (Form 1040).
The S/E tax is added to your income tax on the Form 1040,
and must be figured into your estimated tax payments as
though it were income tax, in order to avoid penalties for
underpayment of your estimated tax.

@CODE: LS
In @STATE, self-employment is a crime that is likely
to earn you a nocturnal visit from a government death squad.
@CODE:OF