My client is self-employed (sole owner) and has no employees. Can he deduct, on Schedule C, Self Employment tax he paid? If "yes", will it be under "Taxes and Licenses Paid" on Sch. C?
Thank you in advance for any input.
Just to provide some additional context. No deduction of SE-tax is allowed on Sch C because it is already allowed somewhere else on the return (well, at least a part of it - more on that later). Allowing a deduction on Sch C would be double dipping.
First, you need to remember that SECA (under §§ 1401 and 1402) is the self-employed's equivalence of FICA (under §§ 3101, 3111, and 3121). For FICA, half of that is recovered from employees, which means employers can only deduct their half as a business expense. The same goes for self-employed individuals - they are only allowed to deduct half of the SE-tax, which represents the employer's portion of OASDI and Medicare.
Here's where it gets even better. SE-tax is assessed only on net earnings from self-employment, which excludes under §1402(a)(12) what essentially is the employer's portion of SECA. That is why SE-tax is assessed only on 92.35% (100% - 6.2% - 1.45%) of the net earnings from self-employment. As a side note, this is not perfect math - if Congress wanted to do it right, they would have recognized that this is a circular calculation but that could confound the general public.
But that's not all... If you call in the next 10 minutes, we will give you another discount. (Monotone: Operators are standing by. So call now.) Oops, I'm sorry - that's for informercials. In any case, the other discount is the deduction I referred to earlier. §164(f) allows 1/2 of the SE-tax as deduction that is attributable to a trade or business, which is deductible for AGI under §62(a)(1).
At the end of the day, your client will get a deduction for SE-tax, just not on Sch C but on Sch 1.
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