 Here we are in our example, Form 1040 populated with LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website, irs.gov, irs.gov. Starting point, single-filer, Mr. Anderson living in Beverly Hills, 90210. No W2 income, instead we have the business income down below. Let's take a look at the flow-throughs of the business income, which come from the Schedule C, profit or loss from a business, and that is an income statement format, income minus expenses, the net income then in essence flowing from the Schedule C to the Schedule 1, and then it flows into the Form 1040. The Form 1040, there it is. We know that they also have to deal with the self-employment tax, which is our point of focus this time. That flows from the Schedule C, net income, then to the Schedule SE, self-employment tax, calculating social security and Medicare equivalent in essence to the payroll tax for the sole proprietor, at in this case, 14129, which flows into the Schedule 2, there it is here, which flows into the Form 1040, page number 2, and there's the 14129. We get half of that as a deduction on page 1 of the Form 1040. We can see here, just to note that flow-through, that goes from the Schedule C, of course, once again, the 100,000 flow into the Schedule SE, calculate the self-employment tax, social security and Medicare, half of that then, 7065 in this case, flows into Schedule 1, page number 2, which flows into the Form 1040, and here we have it here. So now we've got the 100,000 minus the 7065, gives us the 92,935, AGI, minus the standard deduction we're taking in this case is 12,950. We're letting the worksheet calculate the qualified business income deduction, 15997, to get down to the 63,988 taxable income, page 2, calculating the tax, federal income tax, 9,000 or 692, the self-employment tax, 14129 for total tax, 23821, 30,000, we are imagining we're estimated tax payments gets us to 6,179. We're going to mirror that over here on our Excel worksheet in a formula basis. So we've got the 100,000 that's flowing in from Schedule C, which is in essence just an income statement, noting in practice you might do a whole nother worksheet for Schedule C to look at adjustments to income. We have a whole nother course or section on that if you want to dive into like building a worksheet to help you do the data input. But in essence, we've got the net income that's flowing in here, then we have the adjustments to income. Let's focus first down here, the other taxes, the other taxes we put in another sheet similar to what we would see on the tax return, other credits and taxes where we have the, I'm sorry, other taxes here, which is the 14129, that flows in here, we also have the 7065, which is half of that, which is coming from this sheet, adjustment to income, half the self-employment tax, that gets us to the 93936, the standard deduction 12950, then we pulled in the qualified business income deduction calculated from the tax software to get the 63989, which should match the 63989 we saw over here, and then we have the tax calculated from the software at 9692, 9692, there's the 14, and there's the 30,000 that we made for estimated payments to get to the bottom line of 6179. So that's the outline. All right, so we're focused on the self-employment tax. So you'll recall that if I go to the schedule C, if I had employee, welcome employees, then I would be dealing with payroll taxes. And if I had payroll taxes, then I would have to deal with social security and Medicare that I would have to withhold from my employees. And I would also have to pay my portion of social security Medicare based on their income and expense to me, payroll expense, right? I have to calculate my portion. In this case, however, we're talking about self-employment tax for sole proprietorship. We don't, in this case, issue ourselves a schedule C because we're not a separate entity. Instead, we're just going to take the net income in essence from the schedule C and then calculate the self-employment tax. It's similar to a situation where we're an employee of another company in that we have to pay both the employer and employee side of it. So in other words, if you were an employee and you made 100,000 versus if you made 100,000 on the schedule C, you would be better off from a taxes on social security and Medicare to be an employee because you would only be withholding your portion half of the social security and Medicare, whereas here you're going to be treated as though you are both the employer and employee, at least for the most part, paying for the most part like twice as much. But remember that it's also still beneficial to be a sole proprietor sometimes because you might have expenses that you can write off, that you can't write off if you're a W-2 employee and you have more flexibility in that kind of stuff too. So that's the general idea. So the net income then rolls into the schedule SE, so we can see it right here, the 100,000, and then it multiplies at times as 0.9235 for the standard method that we would use. And so it's actually recording the tax not on the full 100%, but on the 0.9235% in essence. And then we calculate down here the social security and Medicare portions on it. That's how we get to that 14129, which is the tax, the 7,000, then being half of that as the deduction. Let's try to mirror that over in our Excel worksheet just so we can understand this calculation and possibly work on making an Excel worksheet that you can kind of use to double check it and get a better understanding of it. So I'm going to go back on over here. I'm going to go back to my self-employment worksheet and see if we can just put something together. It's not going to be perfect, but it could possibly help us to get an idea of the calculation. So I'm going to put this, I'm going to make this skinny over here, and I'm going to do the self-employment tax, self-employment tax. And so boom, let's do that. Let's make this black and white maybe, black and white. And then I'm going to pull in the self-employment income, which oftentimes you would think would come from the Schedule C. So I'm going to have to adjust this as I go here. I'm just going to kind of, I'm going to bring this in from the Schedule C, which is the 100,000. That's going to be our starting point. And then you can see here it takes that 100,000 and basically multiplies it times the point 9,235. So if line dot dot, point 9,235. So I'm going to do that. I'm going to say, okay, let's say times percent. Let's just say times, times percent, percent of what did I say? I said, I said 92.35 percent, point 9,235. Let's make that a percent by going to the home tab number percent to find it. And there we go. And then I'm going to underline it here. And then we'll get self-employment income subject to tax or something like that. My subtotals may not be the best name, but we're going to say we got the 92. Now it could get a little bit tricky because if I had a loss, then we're not going to have any self-employment tax. So I could say I might want to put a more tricky formula in here in the event of a loss. But let's leave it at this for now and we'll get into that later. And so then we've got the 92. And then we've got the maximum for the social security and Medicare. So notice that point 0,62 is usually what you pay for social security if it was a sole proprietor. We're going to double that to the social security rate we pay here, which is the 12.4. And then we double the 0.0145 to the 2.9. That's what I mean by we pay the both the employer and employee portion.