Christopher Gething, Certified Financial Planner
Contributing to an IRA will not result in a reduction in your self employment taxes. There are other retirement vehicles which you could implement which may help with this issue. You should consult a financial adviser more more details.
Dmitriy Fomichenko, President, Sense Financial
As others have mentioned, your contribution will only lower income taxes, not SS taxes,
As a side note, as a self-employed person, if you don't have any full-time employee, you may qualify to set up a Solo 401k, which will allow you to contribute more and save more on income taxes than an IRA.
Ryan Fuchs, Financial Planner
There are strategies you, as someone who is self-employed, can utilize to lower your SS & Medicare taxes, but the one you mention is not one of them. It would only affect your income taxes.
That being said, even the strategies to lower SS & Medicare taxes can have some drawbacks. For example, you can set everything up so that you can take a portion of your earnings as salary (on which you would continue to pay SS and Medicare) and a portion as a shareholder distribution (on which you would NOT pay SS and Medicare). However, you are effectively lowering the amount that will be used to calculate your future SS benefits, which may result in lower benefit payments when you collect SS.
So, you have to be careful and try to find a happy median if you wish to implement a strategy to save on SS & Medicare taxes. You should consult your CPA, financial planner, and/or an attorney before implementing such strategies because of the long-term implications. Michael Kitces has a blog post from earlier this year on this very topic (https://www.kitces.com/blog/how-avoiding-fica-taxes-can-actually-cost-you-lower-taxes-can-lead-to-lower-social-security-benefits/).
Keeping all that in mind, it is still probably worth putting money into an IRA (whether SEP, traditional, Roth, etc.) or a Solo 401k to set aside for retirement, and as stated, that will help reduce your income tax liability in the year of contribution.
Larry McClanahan, Financial Advisor
That's creative thinking, but unfortunately it won't help. Traditional IRA contributions reduce income taxes but have no affect on self-employment taxes (SS & Medicare).
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