How much to set aside for taxes

how much to set aside for taxes

because the third-party paying you is not withholding your

taxes.

How much you should set aside will depend on your personal

income tax bracket. How much you should set aside will also

depend on the profit, not the gross amount of compensation.

So you'll have to take into consideration your expenses

associated with your compensation.

But generally speaking, this is a good estimate to take into

consideration (please email me for a more custom-crafted

answer):

Federal: 20% +/- 10%

Self Employment Tax (Social Security + Medicare): 15.3%

State Tax (depends on your state): 5% for IL

If you're going to make a great deal of money, estimate out your federal at a higher rate and eliminate the 12.4% social security

portion of the SE tax when you exceed the 2014 $117,000 wage base limit. And please adjust your State tax accordingly.

Please understand that your personal deductions will help cut down your federal tax liability created by your contracting

income,

but it will not reduce your SE Tax portion. So for example, if you have mortgage interest and use that as a personal itemized tax

deduction, it will reduce your federal taxes owed that was created by your 1099-MISC income, but it will not reduce your SE Tax

portion (the 15.3%).

You should pay your taxes in the proper installments to avoid any penalties. The 4 installment due dates are:

April 15, 2014

June 16, 2014

Sept. 15, 2014

Jan. 15, 2015

Key Take-Aways:

    Set aside an Estimated Payment amount based on net profit (compensation minus related expenses)

The proper rate should be determined by your personal federal tax rate, state rate, and social security + medicare tax (SE

Tax).

Make your Estimated Installment Payments on time or else face a penalty. Penalty is based on how much taxes were due.

Please email me a question and we would be happy to answer.

Source: www.bmkbusinesssolutions.com

Category: Taxes

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