Self-Employment Taxes and Different Business Types

Individuals who work outside of a company are subject to a different form of taxation. This is true even if the person works for a company but also works as a sole entity in another business. Such tax matters can become complex, for which a Boston tax planning lawyer can provide assistance.

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What Is Self-Employment Tax?

Self-employment tax is imposed on individuals to satisfy payment on Social Security and Medicare. As an employee for another business, the company pays half of your SECA liability, and you pay the other half. When the company is removed from the equation, someone must pay the other 50% of SECA, and that devolves generally to the individual who is self-employed. However, matters are not quite so simple, as a Boston tax planning lawyer can attest. Much depends upon the form of the business and one’s position in relation to it.

Sole Proprietorships

A sole proprietor is, by definition, the sole business owner. Therefore, 100% of SECA costs are to be paid by him/her. This amounts to roughly 15% of the net earnings of the business in most cases. A limited liability corporation that is owned by one individual is taxed in the same way.


Partnerships are handled in accordance with the number of individuals who are legal owners. Partners in a business are not considered to be employees by IRS standards. The percentage of net profits to which they are liable for SECA corresponds with their ownership in the business. If, for instance, a partnership is comprised of five individuals, and each shares equally in the profits, one individual will be subject to paying 20% of the SECA based on the net. Once again, an LLC that is co-owned is handled in the same way.


An owner of a business who incorporates by definition relinquishes ownership; therefore, he is only liable for the employee portion of SECA. However, it should be taken into consideration that the employer portion of SECA is still accounted for out of what would otherwise be company profits. Moreover, as a Boston tax planning lawyer will tell you, incorporating one’s business renders it subject to what is—in essence, double taxation.

Contact Us

For SECA taxes and other matters pertaining to the IRS, speak with a Boston tax planning lawyer at Ionson Law. Call to arrange a consultation at (781) 674-2562.

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