Observations on doing Lars's tax return (3 of probably 4); the self-employment tax, Social Security, and Medicare.

form se.jpgAnother thing that strikes Lars as he prepares and reflects on his 2012 personal income tax return, is the amount of self-employment tax. He pays this because, as a partner in a CPA firm, he gets a share of the partnership's net income rather than a salary, so there is no Social Security tax deducted from his draws (paychecks). For him the SE tax is about $20,000 for the year, roughly half the amount of income tax he's paying.

At 55, Lars is ten years or so away from drawing Social Security, and has been paying SE tax for a long time. He has not factored Social Security income into his retirement planning, although as the time gets closer and the system remains in place he becomes a little more confident he'll actually receive some. But it doesn't seem like a great bargain, paying today's equivalent of a $20,000 a year for decades in hopes of his and Kyra's getting $30,000-plus for -- well, maybe decades, maybe it isn't so bad.


Lars will wait 'til he's 66 or 70 to start drawing Social Security, so he'll get a higher amount. He'll probably work that long; he likes staying busy as an accountant. Even if her own work history doesn't justify her getting it, Kyra can get half what Lars draws.

What does seem like a good deal is Medicare, available at 65 or when he stops working, whichever is later. Free or at least cheap medical insurance; how can that not be beneficial? Who's paying for this? Lars wonders, but not for very long.