Estimate your total freelance taxes including self-employment tax, income tax, and quarterly payment amounts.
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A Texas-based freelance graphic designer earns $140,000 net profit/year from client work. She's evaluating whether to stay as a sole proprietor, form an LLC, or elect S-Corp status to reduce self-employment taxes.
Takeaway: S-Corp saves $8,300/year but adds ~$1,500-$3,000 in accounting fees (payroll, extra returns). Break-even is around $80-90K net profit. Below that, the overhead eats the savings. Texas has no state income tax, so the benefit is purely federal SE savings.
LLC annual fees range from $0 (Ohio) to $800 minimum (California, even for zero-revenue LLCs). Delaware C-Corp is standard for VC-backed companies but adds registered agent costs (~$300/yr) for out-of-state entities. The "best" structure is state-specific.
S-Corps cannot have more than 100 shareholders, cannot have non-US shareholders, and cannot have corporate shareholders. Violating these rules (e.g., adding a foreign investor) terminates S-Corp status retroactively, potentially creating a large unexpected tax event.
The IRS requires S-Corp owner-employees to pay themselves a "reasonable salary" before taking distributions. There is no fixed formula — the IRS looks at industry benchmarks, duties, and hours worked. Setting the salary too low is a common audit trigger for S-Corps.
Business break-even models track revenue vs. direct costs. They rarely factor in the owner's time as a cost. If you're working 60 hours/week at imputed $50/hour, your "profitable" business may be paying you $12/hour after the opportunity cost calculation.
Break-Even CalculatorA service business valued on EBITDA multiples (2-4×) gets a very different number than one valued on SDE (seller's discretionary earnings) or discounted cash flow. Buyers and sellers typically use different methods to argue their preferred price. This calculator uses a single method.
Business Valuation CalculatorBased on your inputs
20.9% effective rate
| Net Profit | $72,000 |
|---|---|
| Self-Employment Tax (15.3%) | $10,173 |
| SE Tax Deduction (½) | -$5,087 |
| Adjusted Gross Income | $66,913 |
| Taxable Income | $52,313 |
| Federal Income Tax | $6,562 |
| Total Tax | $16,735 |
| Quarterly Payment | $4,184 |
| Estimated Take-Home | $55,265 |
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Self-employment tax is 15.3%: 12.4% Social Security (up to $160,200) + 2.9% Medicare. You can deduct half of SE tax from your income.
Net profit = gross income minus business expenses. Only net profit (not gross revenue) is subject to self-employment tax.
Yes. If you expect to owe $1,000+ in taxes, the IRS requires quarterly estimated payments (April, June, September, January).
Home office, equipment, software, health insurance premiums (100% deductible), retirement contributions (SEP-IRA, Solo 401k), and business expenses.
Estimate annual income tax plus self-employment tax, divide by 4. Pay by April 15, June 15, September 15, and January 15. Use IRS Form 1040-ES or pay online at IRS.gov/payments.
The IRS charges a penalty of about 8% annually on underpaid estimated taxes. Avoid penalties by paying 100% of last year's tax (110% if income exceeded $150,000) or 90% of current year's tax.
Yes. SEP-IRA allows up to 25% of net self-employment income (max $69,000 in 2024). Solo 401(k) allows up to $23,000 employee contribution plus 25% employer contribution.
The QBI deduction (Section 199A) lets freelancers deduct up to 20% of qualified business income. It phases out for specified service businesses above $182,100 (single) or $364,200 (married filing jointly).
Yes. Freelancers report business income and expenses on Schedule C (Form 1040). Net profit flows to your personal tax return and is also subject to self-employment tax on Schedule SE.
Self-employed individuals can deduct 100% of health insurance premiums for themselves, their spouse, and dependents as an above-the-line deduction on Form 1040. This reduces both income tax and adjusted gross income but does not reduce self-employment tax.
SE Tax = Net Profit × 0.9235 × 15.3%
AGI = Net Profit − (SE Tax / 2) + Other Income
Taxable Income = AGI − Standard Deduction
Every formula on this page traces to a federal agency, central bank, or peer-reviewed institution. We cite the rule-makers, not secondhand blogs.
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Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.