The half of self-employment tax that can be deducted is used to calculate:

The half of self-employment tax that can be deducted is specifically used to calculate adjusted gross income (AGI). This deduction is advantageous because it allows self-employed individuals to reduce their taxable income, ensuring they only pay taxes on their net earnings after accounting for this deduction.

When self-employed individuals calculate their income, they initially determine their net profits from their business activities. After that, they can apply the deduction for half of their self-employment tax, which is calculated based on their net earnings. This deduction then directly impacts their AGI, which is an important figure for determining eligibility for various credits and deductions, as well as the overall tax obligation.

The concept of AGI is central to tax calculations, as it serves as a starting point for tax computations and is used to determine the phase-out of certain deductions and credits. Therefore, understanding the role of this deduction is crucial for effectively managing tax liabilities for self-employed individuals.