A sensible framework for turning tax confusion into advisory alternatives.
Highlights
- Self-employment tax creates shock money circulate crises for service suppliers transitioning from worker standing.
- OBBBA completely extends QBI deductions however would not cut back the 15.3% self-employment tax burden.
- S-corporation election can save $5,000+ yearly for companies incomes over $60,000 revenue persistently.
A service supplier runs the numbers in November: gross income $180,000, bills $80,000, web revenue $100,000. They suppose, “I made $100K, so I’ll owe earnings taxes on that.”
However then they uncover additionally they owe self-employment (SE) tax, which they’ve by no means actually understood. Frustration units in: “Why am I being taxed on cash I didn’t take house?”
What they believed: “Taxes = earnings tax on revenue. That’s it.”
What really occurred: They forgot (or didn’t know) about self-employment tax, which is each an earnings tax and a payroll tax—and it applies to enterprise homeowners, not staff.
This situation performs out in CPA workplaces throughout America each tax season. The shock creates money circulate crises, emotional frustration, and rushed year-end choices purchasers later remorse. But it surely additionally creates an advisory alternative.
Bounce to ↓
Why small enterprise homeowners don’t see the self-employment tax coming
Breaking down the self-employment tax calculation
How OBBBA adjustments the image for self-employment tax
What really reduces self-employment tax
The advisory alternative: Change the dialog to tax planning
The place Apply Ahead is available in
Your small enterprise consumer dialog guidelines
Put together for tax season 2026: Begin now
Why small enterprise homeowners don’t see the self-employment tax coming
Most service suppliers come from worker backgrounds. As staff, they noticed payroll deductions on their pay stubs—federal earnings tax, Social Safety, Medicare. However they by no means noticed the employer’s portion as a result of it was paid individually.
Right here’s what they didn’t understand: their employer was paying a further 7.65% in payroll taxes on their behalf.
Once they turn out to be self-employed, that employer portion doesn’t disappear. They’re now liable for each halves:
- Worker portion: 7.65%
- Employer portion: 7.65%
- Whole self-employment tax: 15.3%
The speed hasn’t modified. The duty has. Self-employment tax isn’t an “further” tax—it’s the identical payroll tax that was at all times there, now simply absolutely seen.
Breaking down the self-employment tax calculation
Let’s stroll via the mathematics your purchasers want to know.
Situation: $100,000 web enterprise earnings
Step 1: Calculate self-employment tax
- Internet enterprise earnings: $100,000
- Multiply by 92.35% (adjustment issue): $92,350
- SE tax fee: 15.3%
- Self-employment tax: $14,140
Step 2: Calculate earnings tax
- Internet enterprise earnings: $100,000
- Minus: 50% of SE tax (deductible): $7,070
- Adjusted earnings: $92,930
- Minus: Normal deduction (2025): $14,600
- Taxable earnings: $78,330
- At 12% bracket: $9,400 in earnings tax
Step 3: Whole federal tax
- Revenue tax: $9,400
- Self-employment tax: $14,140
- Whole: $23,540 (about 23.5% of revenue)
That is the place the shock units in. However when you’ll be able to clarify why every part exists, you rework confusion into understanding.
How OBBBA adjustments the image for self-employment tax
The One Large Stunning Invoice Act (OBBBA), signed into regulation in 2025, made important adjustments to the tax panorama—and it’s creating new planning conversations.
What modified:
- The Certified Enterprise Revenue (QBI) deduction is now everlasting (beforehand set to run out after 2025)
- Part-out thresholds elevated for larger earners
- Extra service suppliers now qualify for the complete 20% deduction
What this implies in your $100k earner:
With the QBI deduction:
- $100,000 earnings
- 20% QBI deduction: $20,000
- Taxable earnings diminished by $20,000
- Decrease earnings tax invoice
That is highly effective. However right here’s the essential level your purchasers want to know:
The QBI deduction does NOT cut back self-employment tax. It solely reduces earnings tax.
Your consumer’s self-employment tax continues to be $14,140. The QBI deduction helps with the earnings tax portion—but it surely doesn’t get rid of the shock of that 15.3% payroll tax hit.
That is the place deeper planning turns into important.
What really reduces self-employment tax
When purchasers ask “How do I decrease this?”, right here’s what you could focus on:
1. S-Company election
That is the best technique for higher-earning service suppliers.
The way it works:
- Pay your self an affordable wage (topic to payroll taxes)
- Take remaining revenue as distributions (NOT topic to SE tax)
Instance:
- Sole proprietor: $14,140 SE tax on $100K revenue
- S-corp: $60K wage + $40K distribution = ~$9,180 payroll tax
- Potential financial savings: ~$5,000 yearly
The catch: S-corps require payroll processing, company tax returns, {and professional} setup. They make sense for service suppliers persistently incomes $60,000+ in revenue. Under that threshold, the financial savings not often justify the complexity.
2. Quarterly estimated tax funds
This doesn’t cut back the full owed—but it surely prevents April shock.
Service suppliers who pay estimated taxes quarterly (based mostly on cheap projections) keep away from the “shock invoice” downside totally. That is behavioral, not structural—but it surely’s foundational.
3. Strategic year-end planning
Many consumers attain out in November for “tax planning.” At that time, their earnings is basically decided.
The true planning window is throughout the 12 months.
The advisory alternative: Change the dialog to tax planning
That is the place CPAs and monetary advisors create actual worth by shifting from reactive compliance to proactive planning.
Inquiries to ask in January/February:
- “Primarily based on final 12 months, what do you count on to earn this 12 months?”
- “Are you paying quarterly estimated taxes? Let’s calculate what you ought to be paying.”
- “If you happen to’re persistently incomes above $60K in revenue, have we modeled S-corp standing?”
- “What’s your money circulate plan for tax funds all year long?”
These conversations rework tax from a invoice you owe right into a planning framework you handle.
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Capitalizing on fast questions: Flip fast questions into worthwhile engagements
The place Apply Ahead is available in
Thomson Reuters Apply Ahead helps tax professionals increase from compliance work into advisory providers. It gives the instruments, insights, and consumer communication frameworks to show widespread tax questions into progress alternatives.
When you’ll be able to proactively plan with purchasers—relatively than react to their shock—you construct deeper relationships, improve retention, and create new income streams.
Your small enterprise consumer dialog guidelines
When a consumer is stunned by self-employment tax, stroll via these factors:
- Present web enterprise earnings (precise YTD, not estimates)
- Self-employment tax calculation (present them the mathematics—it’s not an “further” tax)
- Prior 12 months comparability (assess improve/lower)
- Quarterly estimated funds made thus far (are they on observe?)
- Schedule for remaining quarterly funds (create predictability)
- Enterprise construction evaluation (sole prop vs. S-corp evaluation)
- Probability of constant or rising earnings (when does S-corp math work?)
- Money circulate and reinvestment plans (pulling revenue out vs. reinvesting)
- State tax obligations (many miss state earnings tax planning totally)
Put together for tax season 2026: Begin now
The professionals who sleep nicely on April fifteenth are those who’ve proactive conversations early within the 12 months.
Don’t look forward to year-end to speak about taxes. Your purchasers’ quarterly cost obligations and enterprise construction choices have to occur throughout the 12 months, not at submitting time.
Prepared to show tax questions into advisory alternatives?
Be part of our upcoming webcast: “Capitalizing on fast questions throughout tax season” to learn to determine, interact, and convert these moments into lasting consumer relationships.
Study extra about how Apply Ahead might help you construct a thriving advisory follow alongside your compliance work.
