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Social security tax is broken into to parts... FICA (6.2%) of the first $87,000 you made in 2002 and Medicare (1.45%) of your total wages. For those who are self-employed and not incorporated you end you paying both the 'employee' and the 'employer' portion of the taxes which doubles it.
Where being an LLC or Incorporated helps is that you can pay yourself a specific wage so it caps the limit on your medicare taxes and also the employer portion of the taxes becomes an expense of the company.
For example... if you netted $250,000 self-employed. You'd pay $10,778 in FICA ($87K X 6.2% X 2) and $7,250 in Medicare($250,000 X 1.45% x 2).
Now if you're incorporated as an S-Corp where all the income passes to you anyway, you could set your 'salary' as $100,000. You'd seill pay FICA but half of it would be a direct expense of the company. The Medicare would be a total of $2,900, but half of that is an expense of the company (as are your wages).
So in that example alone without taking into account any other benefits, you'd save yourself $4,350. It works out to more across the board, but I'm using an easy example.
You can also set yourself up a 'pension' plan and put up to $40K a year of untaxed money away. It reduces the bottom line of your company and you pay less taxes that way.
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