Here are some important updates and strategies regarding Social Security and Medicare taxes that may significantly impact your business. These strategies can help you reduce your self-employment taxes.
Social Security update
For 2024, the Social Security tax ceiling increased to $168,600, resulting in a maximum Social Security tax of $20,906 for high-earners. The Social Security Administration projects this ceiling to rise annually, reaching $242,700 or more by 2033. Additionally, the government adds a 2.9 percent Medicare tax to all wages and self-employment income, with an extra 0.9% for high-income earners.
Ways to reduce self-employment taxes
If you’re self-employed, these taxes can be particularly burdensome. Here are a couple of strategies that can potentially reduce your tax liability:
- Operate as an S corporation. This structure allows the corporation to pay you a reasonable salary and distribute the remaining profits to you, exempt from self-employment taxes.
- Avoid the husband-wife partnership classification. With close attention to partnership attributes, you can avoid the husband-wife partnership classification and reduce overall self-employment taxes.
Each of these strategies has specific requirements and potential trade-offs. If you want to discuss the possibilities, please contact us today!