Self-Employment Taxes Explained: Why You Owed the IRS & How to Fix It
Feb 3
3 min read
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Why You Owed the IRS (and How to Change That Going Forward)
If you’re self-employed and found yourself owing the IRS last year, you’re not alone — and you’re not irresponsible.
In fact, this is one of the most common and misunderstood realities of running a business.
Self-employment taxes work very differently from personal W-2 taxes. And for many entrepreneurs, the shock doesn’t come from making money — it comes from realizing how that money is taxed far too late in the year.
This guide breaks it all down in plain language:
Why you owed, what changed when you became self-employed, and what needs to happen to avoid the same outcome going forward.
This Is Not Personal Taxes Anymore
The moment you earn money outside of a W-2, you enter a different tax system.
When you’re an employee:
Taxes are automatically withheld from every paycheck
Social Security and Medicare are split with your employer
You’re often eligible for a refund simply due to over-withholding
When you’re self-employed:
Nothing is withheld for you
You are responsible for both sides of payroll taxes
You must plan and pay proactively
That shift is the root of why so many entrepreneurs owe the IRS — not because they did something wrong, but because no one explained the rules early enough.
What Is Self-Employment Tax (and Why It’s So High)?
Self-employment tax covers:
Social Security (12.4%)
Medicare (2.9%)
Combined, that’s 15.3% — and that’s before federal or state income tax.
Example:
If your business made $50,000 in profit:
Self-employment tax alone could be $7,650
Income tax is calculated on top of that
This is why many entrepreneurs:
Lose their refund
Owe unexpectedly
Feel blindsided at tax time
The IRS didn’t “take more.”The structure simply changed.
Why This Usually Shows Up as a Surprise
Most self-employed taxpayers run into trouble for one of these reasons:
1. No Quarterly Tax Payments
The IRS expects self-employed individuals to pay taxes quarterly, not annually.
When those payments aren’t made:
The full balance hits at filing
Penalties and interest may apply
Cash flow gets strained
2. Underestimating How Much to Set Aside
Many business owners set aside 10–15% — when the real number may need to be closer to 25–30% depending on income and location.
3. Missed or Incomplete Deductions
Deductions reduce taxable income — but only if:
They’re legitimate
They’re documented
They’re tracked consistently
4. No Business Structure Strategy
Not every business should remain a sole proprietor forever. As income grows, structure matters — and the wrong structure can cost thousands.
How to Change the Outcome (This Is the Part That Matters)
The goal is not just to file a return. The goal is to stop being surprised every year.
Here’s what actually changes the experience:
✔ Proactive Tax Planning
Knowing what you’ll owe before the year ends — not after.
✔ Quarterly Payment Strategy
Paying throughout the year to avoid large balances and penalties.
✔ Clean, Accurate Bookkeeping
Clear numbers = better decisions, better deductions, better outcomes.
✔ Strategic Business Structure
For some entrepreneurs, restructuring (such as an S-corp) can significantly reduce self-employment tax when done correctly.
This is not about shortcuts. It’s about systems.
Why Guessing Is the Most Expensive Option
The IRS doesn’t penalize business owners for being new.
But it does penalize for underpayment, late payment, and noncompliance.
Most people who owe every year aren’t failing — they’re reacting instead of planning.
And that cycle continues until something changes.
How We Help Self-Employed Business Owners
At Queen Tax Solutions, we specialize in working with entrepreneurs, freelancers, and small business owners who want clarity — not confusion.
We help clients:
Understand how their business is taxed
Identify what applies to them (and what doesn’t)
Build a plan that aligns with their income and goals
No judgment. No generic advice. Just strategy.
Want Help Breaking This Down for Your Business?
If you want hands-on guidance instead of guessing, you can book a Tax Strategy Session.
During this session, we’ll:
Review your income and structure
Explain why you owed (or may owe)
Identify planning opportunities
Outline next steps so you can move forward with confidence
The session is $99, and that fee is applied to any service if you move forward.
👉 Book a Tax Strategy Session and take control of your self-employment taxes.
