Self-Employment Taxes: Lessons from a Recent U.S. Tax Court Case

ARTICLE | April 21, 2025

Self-employment can be a wonderful way to exercise professional independence and access unique tax benefits, from deducting health insurance costs to contributing to your own retirement plan. Yet these advantages also come with the added responsibility of paying self-employment taxes, which differ significantly from the taxes employees face. Recent U.S. Tax Court cases—like one involving a movie reviewer who sold memorabilia online—highlight the importance of classifying income correctly and complying with complex rules on self-employment taxes. Understanding how courts interpret these provisions can help you avoid costly mistakes. The key takeaway is that diligence in classifying income is absolutely essential to staying on the right side of the tax law.

The recent Tax Court decision underscores one of the most important lessons for those who work for themselves: proper classification of income is paramount. Self-employment tax exists to capture the Social Security and Medicare responsibilities that employers and employees typically share, and it applies to any profit you generate from your trade or business. Incorrectly treating business income as “other income” can lead to significant penalties and back taxes.

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