If you’re self-employed in Houston, taxes can feel confusing especially when you hear terms like self-employment tax and income tax. Many business owners assume they’re the same thing, but they’re not. Understanding the difference can help you avoid surprises, stay compliant, and keep more of your hard-earned money.
At Saluja & Associates CPA, we help Houston entrepreneurs, freelancers, and independent contractors clearly understand their tax obligations and plan smarter.
What Is Income Tax for Houston Business Owners?
Income tax is the tax you pay on your taxable earnings. If you’re self-employed, this includes your net business income after deductions.
Key Points About Income Tax:
- Applies to wages, business income, interest, and other earnings
- Texas does not have state income tax
- You still pay federal income tax based on IRS tax brackets
- Deductions and credits can significantly reduce what you owe
Note: Your income tax rate depends on how much profit your business makes during the year.
What Is Self-Employment Tax?
Self-employment tax covers Social Security and Medicare contributions. When you work for an employer, these taxes are split. When you’re self-employed, you pay both portions yourself.
Self-Employment Tax Basics:
- Current rate is 15.3%
- 12.4% for Social Security
- 2.9% for Medicare
- Applies to net business income
- Reported on Schedule SE with your tax return
Even if your income tax is low, self-employment tax can still be significant.
Self-Employment Tax vs. Income Tax: Key Differences
Purpose of the Tax
- Income tax funds general government expenses
- Self-employment tax funds Social Security and Medicare
Who Pays It
- Employees split payroll taxes with employers
- Self-employed Houston business owners pay both shares
How It’s Calculated
- Income tax uses tax brackets
- Self-employment tax is a flat percentage
Can You Reduce It?
- Income tax can be reduced with deductions and credits
- Self-employment tax can be lowered through strategic tax planning
This is where professional guidance makes a real difference.
How Houston Business Owners Can Lower Their Tax Burden
small business tax planning Houston can help reduce both income tax and self-employment tax.
Practical Strategies Include:
- Claiming all eligible business deductions
- Deducting half of your self-employment tax
- Making retirement contributions (Solo 401(k), SEP IRA)
- Structuring your business as an LLC or S-Corp
- Paying quarterly estimated taxes correctly
A Certified Public Accountant in Houston, we help Houston self-employed professionals choose the right structure and strategy—so they don’t overpay or underpay.
Why Houston Self-Employed Professionals Need Proactive Tax Planning
Many self-employed taxpayers only think about taxes at filing time. That often leads to:
- Large unexpected tax bills
- Missed deductions
- IRS penalties for underpayment
Proactive planning throughout the year helps you:
- Improve cash flow
- Avoid IRS notices
- Make confident business decisions
Final Thoughts- CPA for self-employed Houston
Understanding the difference between self-employment tax and income tax is essential for Houston business owners who want to stay compliant and save money. The right planning can make a major difference.
If you’re unsure whether you’re paying too much or too little Saluja & Associates CPA is here to help Houston entrepreneurs navigate taxes with confidence.
Ready to plan smarter? Connect with a trusted Houston CPA today.
Frequently Asked Questions
Yes. Most self-employed individuals owe both federal income tax and self-employment tax.
No. Texas does not impose state income tax, but self-employment tax is a federal requirement.
You can deduct half of your self-employment tax and reduce overall liability with strategic planning.
In most cases, yes. Quarterly estimated tax payments help avoid IRS penalties.
For some Houston business owners, an S-Corp structure can reduce self-employment tax. A CPA can help determine eligibility.
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