Do business deductions count toward Federal, State, Medicare, AND Social Security taxes?

Question

Just wondering how it works. For example, if I have $5000 deduction, does that count toward Federal, State, Medicare (1.4%), and Social Security (6.2%)?

Answer 1

If you are self-employed, then for federal, state, social security and medicare, you are taxed on your NET income, which is your total revenue less allowable business expenses.

Answer 2

Business deductions count first toward business income. If there is a loss on the business activity, THAT becomes a deduction against other income on your federal and state personal return. Nothing reduces the Medicare and SS you pay on wages. If you have a business loss, you have no self-employment income to pay Medicare and SS tax on.

Answer 3

If your income is from a W-2 (and it appears to be since you think FICA/MC is 7.65% not 15.3%), your ability to claim unreimbursed business expenses are very limited.

No changes are made to the W-2, so your Fica/MC tax is unchanged.

The $5000 would put on the schedule A and reduced by 2% of your AGI. If you can itemize, then and only then would it reduce your federal and state income tax.