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If you've ever looked at your bank account after a freelance gig and thought, "Great, I made ten grand," only to find out a big chunk belongs to the taxman, this episode is for you. Anastasia and Myiesha pull back the curtain on self-employment taxes—the Medicare and Social Security bill that doubles when you are both the employee and the employer. They explain why this is the real culprit behind those "where did all my money go?" moments and why every creative business owner, from…
Let’s Get Fiscal is the money podcast for creative entrepreneurs who want to keep more of what they earn and grow their business with confidence. Hosted by CPA and tax strategist Anastasia, each episode makes taxes, bookkeeping, and money management simple, practical, and even fun. We cover topics like tax deductions, small business finances, creative business strategies, and how to avoid costly mistakes—without boring jargon. Whether you’re a filmmaker, designer, artist, or small business owner, you’ll get actionable tips, real-world examples, and a few laughs along the way. If you want to stress less about money and focus more on doing what you love, this is the podcast for you.
This is a hidden expense most business owners don't budget for.
Myiesha Fisher:Let's talk about how to prevent these surprises. Welcome back, guys. What are we talking about today?
Anastasia Aiello:So I wanted to go over self employment taxes. Oh, fun. I know. Because that's kind of the sneaky hidden tax that is really the true cause of a lot of these surprise bills. Yeah.
Anastasia Aiello:So, you know
Myiesha Fisher:So where do you even like begin?
Anastasia Aiello:Well, I think like what are self employment taxes?
Myiesha Fisher:It's a good spot. You're like, am I supposed to be doing this? What is it? Yeah. So what is a self employment tax?
Anastasia Aiello:So it is the Medicare and Social Security contributions. But since you are both the employee and the employer Mhmm. You have to pay both sides. So when you are a W two employee, you still see a deduction for Social Security and a deduction for Medicare, but you are only paying your half, and then your employer is paying the other portion. But when you are self employed, either sole proprietor, single member LLC, partnership, s corporation, really all of that money is gonna be coming out of your one bank account.
Anastasia Aiello:Yep. Both sides of it. And so a lot of times, like, it's not unusual for maybe the income tax to be like a thousand dollars, and it's nice and easy. But then you have self employment taxes that comes in at like $8,000, and then now you have like a nice pretty healthy 10 k bill for making probably not a lot of money.
Myiesha Fisher:Mhmm. So,
Anastasia Aiello:that is where a lot of those prizes come from Okay. And where we need to make sure that we save money. And I would while this is kind of self employment taxes, I would still say that it's beneficial for s corporation owners to have the same consideration. Mhmm. Obviously, the self it's going to be decreased because they're only needing to pay the Social Security and Medicare on their reasonable compensation Mhmm.
Anastasia Aiello:And not the full profit of the business. Yeah. But ideally, once they their profit of the business was greater than reasonable compensation and they were a single member LLC, they converted to an S corporation. Yep. So now and that's one of the things too is, you know, when you're moving from a sole proprietor or a single member LLC, and people say like, oh, move over to an S corporation.
Anastasia Aiello:Well, if your s corporate if your LLC is making the same or less than your reasonable compensation, the s corporation structure is not going to save you money because the Social Security and the Medicare tax is still going to be exactly the same amount. Yeah. Yeah. So so that's why I say it's even if you are an S corporation or even a C corporation, because C corporations still have that reasonable compensation requirement for all of their owners or employees, so it's still something that needs to be considered at every level of self employment. If you are running your own business and you would like your business to pay you something, or you would like to use some of those business earnings for personal items like your groceries or your rent Yeah.
Anastasia Aiello:Then we need to take into consideration the self employment taxes.
Myiesha Fisher:Gotcha. How does is it something that someone could calculate on their own, or is it really only when you're like, you need to go and talk to someone and just make sure that like you guys are doing it? Yeah. Yeah.
Anastasia Aiello:It is something that can be calculated on your own. It gets a little bit trickier because it's based off of the profit of the business.
Myiesha Fisher:So you do need to
Anastasia Aiello:know what your, yeah, your business managers are looking like. Right. Yeah. So if you are doing your book keeping really consistently, you know what your business use of home deductions are, you know about your car mileage, everything is really documented and kept up to date, I mean, single month you could kind of be planning out how much how much self employment tax do I need to save for this month, or, you know, what what did I earn kind of last month, what have you. But a lot of times, everybody's just really busy Yeah.
Anastasia Aiello:And there's not enough time to be able to do that. So what can be easier is to just take a percentage of your, what we call it, your gross revenue. So whatever you brought in without taking into account any expenses, and then that way you still have, I mean, basically a year to figure out what are business expenses and what aren't business expenses because especially if you're a sole proprietor or a single member LLC Mhmm. You're probably commingling.
Myiesha Fisher:Nine times. Yeah.
Anastasia Aiello:You know, not all of your expenses are nice and pretty in one bank account. Maybe you've accidentally used your personal credit card for something or what have you, you know. So then now we get into a situation where it's a little bit more complicated to figure out what your actual profit is
Myiesha Fisher:Mhmm.
Anastasia Aiello:Every single month and kind of in real time. So in those scenarios, I just recommend, you know, especially if it's going to be really super fast paced, just base it off of the money that you're bringing in, and, you know, then that becomes like our worst case scenario. Yeah. So the worst case scenario is this is how much money you owe. Mhmm.
Anastasia Aiello:But ideally, what we're also doing is creating a bucket where your taxes will be lower. Mhmm. You have a little bit of a nest egg just in case the business needs it. I mean, like, fifth case scenario if the business needs it because we don't wanna eat into this tax savings more than what's necessary, and then also we're doing your retirement savings. Yeah.
Anastasia Aiello:Because if your social if we're drilling down your Social Security and your Medicare so that you don't have a big bill there, you also get fewer benefits when you retire. So and that's another reason why everybody's like, oh, I never want to make money and I never want to pay taxes and I never want to do this, and it's like, okay, but you know, when you're 75 and you can't work, you're gonna get a $100 check, and that's all you have to survive, or is the plan to just work forever? Mhmm. You know? Mhmm.
Anastasia Aiello:There has to be an exit strategy Yeah. Of, you know, some kind of reasonable standard of living that, again, I mean a business should be able to support you into retirement, versus a job is something that you have to do forever.
Myiesha Fisher:Mhmm.
Anastasia Aiello:But a business will actually become its own entity that can support you in kind of those later years. So that's why I say, I mean, even if it can be a much larger dollar amount Yeah. You know, if that means that now, you know, your tax bill is cut in half, but we have an extra $10,000 that we can put into retirement, like we can put money into a SEP or a Roth or a traditional IRA or open a solo four zero one k, something like that, you know, or you're just kind of building your own tax refund Mhmm. At that point in time. So in a traditional setting, you know, they are withdrawing the money as you're earning it because the IRS, the The US system is pay as you go, not pay as you want to.
Myiesha Fisher:Yeah. They like your money now. Yeah. So
Anastasia Aiello:when you have a w two, they're already taking money it's paycheck. Yeah. Based off of your gross income. Mhmm. And then they're setting it aside for you.
Anastasia Aiello:You file your return, claim all of your deductions, and then you get a refund back. So, you know, in with a business owner, you're able to, you know, kind of create that bucket yourself. Yeah. And then kind of based on what's happening with the business, then you can kind of go one way or the other. But a lot of it too, it's gonna be based on, you know, do you have historical financials that we can look at?
Anastasia Aiello:Do you have a forecast of what your spending is going to be? Because, I mean, I know we work with some, like, very equipment heavy businesses. So if I said, hey, save 25% of your top line revenue, that's gonna be a big hit for them because they're already operating. You know, a lot of businesses, you know, the traditional sense is like a 20 fifty thirty twenty split. So 50% goes to servicing.
Anastasia Aiello:Oh, okay. You know, the contracts, 30% goes to running the business, and then 20% goes to you as the business owner, you know. So if you're saying like, okay, let's take 25% off of the top, then basically, like, that doesn't leave a lot of profit for you if you're operating at a 50% Yeah. You know, gross profit margin. So, knowing some of those numbers can sometimes be helpful.
Myiesha Fisher:Mhmm.
Anastasia Aiello:But I kind of default to a 25% Okay. Model. Just 25% of whatever your top line is, because most of the time, you know, you're gonna have 15% in your Social Security and your Medicare costs. Mhmm. You're most likely gonna fall in the 22 to 24% tax bracket, plus you'll be like seven to 9% in California, so it's gonna actually be a lot higher.
Anastasia Aiello:Mhmm. But your effective rate will probably fall in that 25 to 30% range.
Myiesha Fisher:Mhmm.
Anastasia Aiello:But again, that's also, you know, we're not even considering any expenses. So if you kind of take a quarter of your income and you set it aside somewhere, then you really are able to build a lot of these other financial goals. So like I said, you're building your retirement savings fund, you're building a regular emergency fund, and you're building your tax savings fund. And so what our goals are kind of, okay, out of that 25, try to make sure not all of it goes right into taxes.
Myiesha Fisher:Yeah. Yeah. Like, how can we allocate this a
Anastasia Aiello:little bit, but still benefit you? Exactly.
Myiesha Fisher:You suggest that people have a completely separate account that it goes into? Like, keep it kind of separate? Yeah.
Anastasia Aiello:Okay. I mean, normally, I'm I'm always recommending a high yield savings account
Myiesha Fisher:Yeah.
Anastasia Aiello:That's held at an institution that's not related to your normal banking at all. Mhmm. So number one, want high yield savings so that we earn a little bit of interest while it's kind of sitting there because we know even if you have to pay your quarterly estimated payments Mhmm. You know, you still get it to sit in and and earning a bit more interest than like the point zero zero It's so low. Thing.
Anastasia Aiello:Yeah. You know? And and so if it's over there, it's earning interest, but then it's also kind of that out of sight, out of mind Mhmm. Principle, it's really gonna force you as a business owner to operate within the limits of what you actually have available to you. So that's also a consideration to make.
Myiesha Fisher:Just not easy access to it. That's fair.
Anastasia Aiello:Yeah. Right. Right. Right.
Myiesha Fisher:Maybe even do it like an automated thing. You're just like, okay. Just a certain little portion of this comes in.
Anastasia Aiello:And I mean, you can you you know, let's say if you already know because estimated taxes are based on what you made in the prior tax year. So if you already know what you made, what you had to pay in taxes last year, you can just start paying them, and you can pay the IRS every two weeks. You can pay the IRS every month. There's nothing that says that you have to pay them only on these quarters. You can send them more payments.
Anastasia Aiello:It's just the quarters or the minimum payments, or you're paying them through payroll at a certain point in time during the calendar year. Yeah. Yep. Okay. That that makes sense.
Anastasia Aiello:But especially when you consider, you know, 25% of your income, that's a big deal. Yeah. That's a lot. And if you are a small business owner and, you know, let's say, again, you're living in LA and the profit of the company is only $30,000, but, you know, like, that's basically nothing for renting an apartment having Yeah. A car
Myiesha Fisher:and all
Anastasia Aiello:of these other things. So even if the business is profitable, because then you're gonna turn around and have this, you know, fairly large tax bill Mhmm. You know, it's it's not going to create enough space for you to be able to have the income that you need to survive. Yeah. So really being aware of that and knowing that that is coming down because then you can either adjust your lifestyle, adjust your strategy, just all kinds of other things.
Anastasia Aiello:It's when it's a big surprise, and like I said, you've been living off of $3,040,000 dollars, but you have a $25,000 tax bill that's a massive hill that you need to climb, you know, and a lot of pressure to be able to get to those points. So it's better to just kind of be aware that this is happening, and it's like one of the biggest, like the toughest pill to swallow just because it's that idea of following your dollars, you know? Yeah. So when you have a w two, like, none of it's real. Yeah.
Anastasia Aiello:It doesn't you know, I mean, yeah, you, get your first paycheck and you get angry the first time, but then you just like kind of adjust and adapt to Mhmm. Whatever that is. But then once somebody gives you the full amount, you have so much lifestyle creep that kind of comes in, and then you're adjusting to that upwards number. So you just need to make sure that you don't allow that to happen so that you can really protect all of the other items. And like I said, you know, 25% is a large dollar amount, but with good tax planning, it doesn't all have to go to the IRS.
Anastasia Aiello:Yeah. And I think that's kind of the key.
Myiesha Fisher:Very helpful. Like, your money working for you a little bit with your retirement funding and things like that. So that that's a little
Anastasia Aiello:bit like, I'll get that eventually. Yeah. Right.
Myiesha Fisher:It's not going to the the nether and then never to be seen again.
Anastasia Aiello:Yeah. Right. Right. But I mean, I think, like they say, taxes are, for business owners, one of their larger expenses Yeah. Each year.
Anastasia Aiello:So just even recognizing that
Myiesha Fisher:Mhmm.
Anastasia Aiello:And planning around that is going to be a really big thing that prevents a lot of these, like, big surprises or, like I said, like going freelance, and then you're like, okay, well, now I have this, like, I don't know, sometimes it's like $75,000, a $100,000 taxes because you didn't pay for three years because you were fighting your way through. Mhmm. And that happens a lot. And so if you are going into this situation knowing all of that, it makes it a lot easier, and then you don't, you know, you're not afraid of the business growing, and you're not kind of catching up to some of the different things that are sitting out there.
Myiesha Fisher:Yeah. Nope. I think that makes complete sense. I also think because we work with majority creatives that we usually are just like, just don't have it be touching. Like, just don't don't have access to it.
Myiesha Fisher:Don't do any
Anastasia Aiello:of those things. Because like, yeah, it'll be like, oh, just a
Myiesha Fisher:little bit here, a little bit there, be like, no, no, no. This is to help you later on, I promise. Yeah. Because it is it is nice when we're like when we get to have the calls with the client and they're like, okay, I put away this much and you're like, great, this is where it's at, now we have this little extra, like, it's a way better conversation than the when we get someone first and like, I'm really sorry, but you are going to end up owing this, that, and the third.
Anastasia Aiello:So it's nicer for us too
Myiesha Fisher:when like Mhmm. Weird people have been able to plan ahead
Anastasia Aiello:and, yeah,
Myiesha Fisher:get that kind of going in.
Anastasia Aiello:Right. Exactly. And I mean, like you said, we we have people and they're just like, you know, I went to this tax preparer and they said that I owe $20,000. And I'm like, well,
Myiesha Fisher:you owe 20,000? I hate to break it with you. Yep. Yep. But now here's how we can maybe, like, prevent that or plan better for it so that way it's not a surprise.
Myiesha Fisher:Because, yeah, I'm definitely an out of sight, out of mind person. Like, I love to be prepared, and I love to not have to think about it. So, yeah. Like, having those I don't know what that is.
Anastasia Aiello:Is that a bug? Is it It is.
Myiesha Fisher:It is a bug? Okay. What's
Anastasia Aiello:It's the got wings. Yeah.
Myiesha Fisher:It's got wings? Yeah. Sorry about that. Yeah. I like to be, like, you know, prepared for things, but I also need to not know that something's available to me too.
Myiesha Fisher:So, like, it's nice when it's just like, oh, that's just like that little
Anastasia Aiello:bucket that we don't really ever look at. So yeah. Mhmm. Mhmm.
Myiesha Fisher:It's coming to you. Yeah.
Anastasia Aiello:So if you have any questions about how you can prepare for these taxes, what they really mean for you and your business, and any questions just like basically what is this and why do I need to go through the, you know, these processes, feel free to send us a comment, shoot us an email, however it goes. We are here to talk all things tax. We will talk to you later. Bye. That's it for this episode of
Myiesha Fisher:Lets Get Fiscal. If this helped you see your business differently, follow or subscribe on your favorite podcast platform so the next episode is already waiting for you. And if a specific money question came up while you were listening, send it through the link in the show notes. Real listener questions help shape future episodes. You can also follow Lets Get Fiscal on social media for more tax tips, business finance breakdowns, and clips from the show.
Myiesha Fisher:Until next time, keep building the business behind the work.