self employment taxes not adding up?

Question

My wife and I work full time and I have a side business. I am using tax software to do my taxes and I am baffled as to the taxes I owe? If I do not add in my side business income I owe about $700 federal. When I add my side business income, deduct my expenses and deduct my solo 401k contribution, my net side bus income is zero, but now it says I owe over $5000 federal?
Am I missing something. If my side biz made 20k, I had 10k in expenses and I put 10k in the 401k, why am I paying any additional taxes over the $700?

Answer 1

The $10K going into the 401K doesn't come off of your business net, so you still have $10K of business income to pay self-employment tax on. That would be another $1500 or so in tax. Plus you'll have to pay income taxes on the $10K business profit, but that should be balanced out by the 401K deduction.

Something doesn't seem right here. The self-employment tax would definitely add to the $700, but not enough to take it over $5K. I'd print out your return before and after adding in the side business and see what numbers changed and by how much.

Answer 2

The 15.3% self employment tax. You owe it on the $$$ that goes into the retirement account even though there's no income tax on it. Without seeing all of the calculations it's not possible to say any more.

Answer 3

it is still income.