In the U.S. there are few ways to get around the 15.3% self-employment tax that goes to Social Security and Medicare.
However, this amount is the same as if you were an employee of a company. If you were an employee, your employer would pay a 7.65% tax on your wages and you would have 7.65% deducted from your wages.
When you're self-employed, the tax seems big because you're paying both the employer and the employee parts of the tax.
Generally, as a self-employed individual, you can expect to pay that 15.3% tax on your self-employment earnings. There are few deductions that will reduce this tax liability.
If you're looking to incorporate, you have several choices of corporate structure, including (but not limited to):
- C corporation (shares)
- Limited Liability Corporation
- Limited Liability Partnership
C corporations are companies that issue stock to their owners. LLPs and LLCs can make sense for individuals who have small, closely-held businesses and seek to limit personal financial liability.
A C corp will have to pay tax on profits, and it issues dividends to the owners. The owners will then have to pay income tax on the dividends.
Some partnerships "pass through" the profits from the partnership without taxation. Thus, you only pay personal income and self-employment tax on profits.
If you're interested in incorporation, I would strongly recommend finding a lawyer who specializes in corporate structure for your state.
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