Self-employed techs

[Mark McQuade]

Brittney,

I would definitely check with a tax specialist on this.  I hate to disagree with such an esteemed contributor to this list as Mark Potter and others (especially this being my first post after several years of lurking)  I believe that contributions to a conventional IRA are exempt from income tax, but NOT from self-employment tax.

I check the IRS site referenced by Annie and couldn't find the answer I was looking for, but in checking the tax forms I filed last year, I find that the deduction for an IRA occurs on Form 1040, line 32 and is not deducted from the net profit.  Nowhere do I see on Schedule C (Profit or loss from business) a place to deduct for an IRA.  And in fact, schedule C is filled out and then Schedule SE (Self-employment tax) is figured before you ever get to the deduction for an IRA on Form 1040.  The same seems to be true for SEPs (line 28 of form 1040).

Now this is all based on a "Sole Proprietorship."  It may be different for an incorporated business.  Or I may be totally wrong altogether, at which point I hope someone who is an expert would correct me before I lead anyone astray.  If my father were still alive, I would have checked with him first because he was an expert.

I've only invested in a Roth IRA so far, which is not deductible for either, so it's a moot point for me.  But I'm definitely going to look into an SEP now that I read what others have said on the list.

Humbly submitted by,
Mark McQuade
  ----- Original Message ----- 
  From: Mark Potter 
  To: Pianotech List 
  Sent: Friday, October 05, 2007 5:10 AM
  Subject: Re: Self-employed techs


  brittanykirk272 at comcast.net wrote:
    If you invest in an IRA, is the amount you invested exempt from income tax AND self-employment tax?
  Brittney -

  You should definitely check with a tax specialist, but I believe he will tell you that monies placed in a Traditional IRA are exempt from both (they are subtracted from your net profit before any taxes are figured), but monies placed in a Roth IRA are not.  The Roth certainly has some major advantages, though.  When confirming this with an advisor, be sure to check on what the current maximum annual contribution is that can be deducted for tax purposes.

  Mark Potter
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