Gov. Romney paid his full self-employment tax (FICA and Medicare) on his material business income.
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He runs his consulting business as a sole proprietorship paying self-employment tax on the whole profit.
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Trade or business income that hits your return will often be subject to self-employment tax.
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Mr. Geithner is still pretty well known for his tax gaffe with Turbotax and self-employment tax.
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S-corps that have a material amount and number of non-owner professionals would be exempt from self-employment tax.
And the self-employment tax (the rate commonly paid by limited partnerships), is edging up two points to 15.3%.
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That number includes both self-employment tax and payroll taxes on household employees, neither of which are income taxes.
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Another cost that you have to deal with when self-employed is Self-Employment tax.
If Rick or his wife made that mistake, then they underpaid self-employment tax just like Tim Geithner, only not by as much.
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It is unlikely that this was deliberate as Rick is paying quite a bit more in self-employment tax than he needs to.
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Self-Employment tax (SE tax) is essentially where you are paying both the employER and the employEE portion of the Social Security withholding tax.
Self-employment tax, sometimes called SE tax, is a tax consisting of Social Security and Medicare taxes for those who work for themselves.
Further, each domestic partner must pay self-employment tax on her half of business earnings, a situation from which a special provision protects opposite-sex couples.
The failure to file and pay self-employment tax by self-employed individuals could cause them to be ineligible for social security retirement or disability benefits.
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Thus, even though the partner would remain a limited partner for legal purposes, his or her partnership income would become subject to self-employment tax.
Federal form 1040-SS, U.S. Self-Employment Tax Return (downloads as a pdf).
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Also, trade or businesses are generally subject to self-employment tax.
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Senator Olympia Snowe (R-Me.), an important moderate who is courted by Democrats for key votes, was particularly interested in reducing the S-corp self-employment tax impact on small-business job creators.
This is not a concern with S corporations, as courtesy of Revenue Ruling 59-221, income that flows through to shareholders from an S corporation is not subject to self-employment tax.
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Real estate rentals are specifically excluded from self-employment tax.
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Caution: While LLCs are popular these days, it is unclear under current law whether owners are liable for the self-employment tax on all their earnings, or on just the salary they take out.
Because S corporation income is not subject to self-employment tax, there is tremendous motivation for shareholder-employees to minimize their salary in favor of distributions, which are also not subject to payroll or self-employment tax.
John Edwards (D-NC), the vice presidential nominee in 2004, used an S-Corp to reduce his self-employment tax (the S-Corp loophole) on tens of millions of dollars in legal fee income, whereas Gov. Romney did not seek to use this S-Corp. self-employment tax reduction strategy.
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When we first read the fairly short section covering the Medicare surtax on unearned income, we found it to be pretty straightforward and assumed all unearned income, loss and expense would be summarized and taxed just like the self-employment tax on earned income is summarized and taxed, now.
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When the Romneys' self-employment payroll tax is excluded, their effective income-tax rate is 13.9%.
If you are self-employment, tax management is an even more critical aspect of planning.
And, as part of the Middle Class Tax Relief and Job Creation Act I signed in February, we have bolstered Self-Employment Assistance programs that allow States to empower unemployed workers to start their own businesses.
Mr Obama has let one former tax-avoider through: Tim Geithner, the new treasury secretary, who failed to pay self-employment taxes when he was a consultant for the International Monetary Fund. (Foes of America's absurdly complicated tax code were delighted to note that even a reputedly brilliant economic mind failed to comply with it.) But with the financial and economic crisis raging, Mr Geithner appeared simply too important to lose.
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