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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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Which is a better / bigger tax deduction? Purchasing tools

Customer Question

which is a better / bigger tax deduction for me? Purchasing tools for my business or making a donation to a charity
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Purchasing tools for business generally will provide more benefits - business expenses are deducted against business income - so your net business income will be less. That will reduce self-employment AND income tax liability.

But donations to a charity will be deducted as a part of itemized deduction - and will reduce only income tax - not self-employment tax.

Customer: replied 1 year ago.
which will deduct the amount of tax that I have to pay
Expert:  Lev replied 1 year ago.

You you have a business - your tax liability is a combination of both - self-employment taxes and income tax.

self-employment taxes are calculated on NET business income

income taxes are calculated on TOTAL income (including net business income) and depends on your filing status, deductions, etc.

The sum of self-employment taxes and income tax is the amount we pay to the IRS.

Expert:  Lev replied 1 year ago.

As you are in business - you are classified as a self-employed - your self-employment tax liability (which includes social security and Medicare taxes) is 15.3% on NET self-employment income.

and yes - that is in additional to income tax liability.On your tax return - self-employment taxes and income taxes are added together.
he net income (after deductions) will be reported on the form 1040 line 12 -

If the business has net income over $400, it may be required to file Schedule SE, Self-Employment Tax

and net self-employment income is subject to 15.3% self-employment tax.

Self-employment taxes from schedule SE will go to the form 1040 line 57 -

Also - you will deduct half of self-employment taxes on the line 27.

Generally - that all you needs tax purposes.

Please review all possible deductions - that might help to reduce income tax liability.

Any questions?