Back to Ganoksin | FAQ | Contact

Quarterly taxes for self employed


#1

Good morning Orchid Land,

I am newly self employed and work on a contract basis for a jewelry
store 32 hrs. per week. I also work for 1 day a week for another
jeweler which gives me a 40 hrs. work week.

My question to you is this:

How much money out of each “paycheck” does one have to save out
(percentage wise I guess) in order to pay all those wonderful taxes
that are due quarterly.

Recently I have met with a new accountant and we are trying to
figure things out but I would like input from others who have had
more experienced in being self employed.

Thank you for your help
Laurie


#2

Hi Laurie,

A few years back, my relitives, estate attourney and CPA, said
25%-28% should be held back for taxes and social security. If your
accountant doesn’t know, I’d be a little suspect. I once had a
professional help me with my taxes. I had to point out that I should
recieve the EIC credit. They didn’t believe I could get almost $3000.
back and not have paid anything in! And I did get that credit and
have every year its been availabe to me.

I found other more knowledgeable help the next year!


#3

This is not an easy question to answer because we have no way of
knowing what tax bracket you are in which dramatically effects how
much you have to put aside. However, given that you are now going to
be responsible for all of the social security (which is more than 15%
of your profit) you should be putting aside at least (and this
depends on whether you have a state income tax where you live) 30% of
your gross until you have a better idea of what it will be. In the
future your quarterly deposits will be determined by what you paid in
taxes the previous year (by law you have to pay at least what you
paid the year before or no less than 10% less than what you actually
end up owing if you don’t want to pay penalties—but you should
check this with an accountant—I’m not an accountant and my
understanding of it may be a little off). If you’re making $100k or
more I would definitely be putting away more like 35-40% unless you
think you are going to have a lot of expenses you can write off.

Daniel R. Spirer, G.G.
Daniel R. Spirer Jewelers, LLC
1780 Massachusetts Ave.
Cambridge, MA 02140
www.spirerjewelers.com


#4

Hello Laurie,

Every state has different tax laws, and there are so many ways to
remove income from tax liability that you really need to get those
answers from your accountant. Should you feel the accountant is not
providing you the answers you need, find another one… and don’t
waste much time doing it. Lost time is lost money.

Judy in Kansas


#5
How much money out of each "paycheck" does one have to save out
(percentage wise I guess) in order to pay all those wonderful taxes
that are due quarterly. 

Of course the exact amount you will need to withhold will be
dependent on the exact amount earned but in essence you are paying
both portions of all taxes owed, i.e., you are paying both the
employer’s and the employee’s portions of the tax. You can find out
the specific amounts/percentages by checking out the various charts
available on-line at the government sites: the IRS.gov site (I would
probably start out with this page on their website

http://www.irs.gov/businesses/small/content/0,,id=98942,00.html

and the appropriate site for your state. Don’t forget any local taxes
that you might also be liable for. As a person who has been
self-employed for most of my life, the taxes are bothersome and
annoying. It’s basically double-taxation and if not planned for very
well, can really mess up the first few months of each year trying to
scrabble up enough money to make up the amount(s) owed. Your
accountant can be, and should be, your best friend when it comes to
taxes.

BBR - Sandi Graves, Beadin’ Up A Storm
Stormcloud Trading Co
"Beads, Leather and Metalworking Supplies"
St Paul, Minnesota (USA)
651-645-0343


#6

Hi Laurie, I guess it depends where you are in the world.I’ve no clue
of the US of A system, though when i began in the UK 25% was
plenty, plus “they” let you off paying the first year, so you had a
decent start to the business. Now in Finland, all have to register
and
pay vat on every cent, tax % changes every few euro’s,plus you have
to
give an accurate figure upfront for your years profits so they can
work out what you have to pay!? Then you get a bill split over a 4 or
5 payments normally starting from february when you haven’t earnt
enough yet for the first bill!I’m sure you will survive somehow, and
good luck.

Chris Mead.


#7

I to am a contractor. I now have four stores. I need to put back
$1000.00 a month in a seperate account. The taxes here in Arkansas
are high! Boo on that. I made more money then expected one year and
ended up paying a lot. Are you buying health Insurance? Thats high!
Good Luck you are better off working as a contractor. The skys the
limit.

Thanks Eric


#8

One question you need to ask is are you really an employee at the
business you are under contract to? The IRS has very firm rules about
whether or not you are independent contractor or employee. If you
have a regular 32 hr every week contract job at the store that sounds
an awful lot like you are an employee. Many employers try to avoid
taxes and other liabilities by calling their employees independent
contractors but if the IRS gets wind of it they will lots of back
taxes and penalties to deal with. Have your accountant review the IRS
definition of an employee with you and see if you are truly an
independent contractor.

Jim


#9

Hi Laurie

Here is a link to form 1040-ES for those who have to pay estimated
taxes.

Since you were not self-employed in 2006, you cannot estimate based
on last year, so ignore that part. A lot depends on your filing
status (married joint, married separate, single etc) and, if you are
married, how much your spouse makes.

You can (along with most) probably ignore the alternative minimum
tax part. I didn’t have the time to fully look over the sheet, but if
you have specific questions on line items, feel free to email again.

Recently I have met with a new accountant and we are trying to
figure things out but I would like input from others who have had
more experienced in being self employed. 

You didn’t mention if your accountant is new as in newly graduated
or new as in new to you?

Basically, the idea is to arrive at a gross income number. From
there, take all of you deductions and exemptions out. From there
divide by the number of pay periods in the year to get to a weekly
amount. From there, multiply by the number of weeks in the quarter to
arrive at estimated tax due.

One important point, if your 32 hour/week job is now or is willing
to issue a w-4 for you and take the appropriate amounts out of your
pay, you can have him/her deduct a bit extra to cover what is due on
your 8 hour/week job. From what you say above, it appears you are a
complete independent contractor. Please don’t take this the wrong
way, but this is not the best situation for you to be in from the tax
standpoint (more work) from the insurance standpoint (as in there
isn’t any) and probably a lot more. My father was a new independent
contractor 5 years ago in construction. He had a stroke on the job.
No insurance meant that today, he has nothing. As his daughter, it
was difficult to get him adequate treatment because the doctors knew
his status and I was the one who got all the collection calls. I am
sorry to be so opinionated about this issue, but I cannot, in good
faith, not mention it. I would not be anyone’s 32 hour/week
independent contractor knowing what I know today. In my mind, it is
tantamount to forced labor because a lot of independent contractors
do not make enough to afford adequate health insurance.

Another point, if your 32 hour employer does have you on a w-4
already, you probably don’t have to pay/file estimated tax because
your tax liability from earnings from self-employment will not be
more than 1000 dollars for the year

I know it sounds awful and frustrating. Sorry for that. One thing to
note, I saw a few self-employed peoples’ returns when I worked at a
A firm. They didn’t seem to worry very much about timely filing. I
can’t recommend ignoring the issue, just saying that some folks just
wait until the end of the year. The time and cost of paying the
accountant to figure the estimates and what-not may be higher then
the penalty for late payment. Please, everyone don’t get up-in-arms
about this point. I’m just stating what I observed some people doing.

Good Luck
Kim


#10

Laurie,

Your tax rate depends on whether you are single, married,
dependents, etc.

Multiply your rate by your income and that’s the max number.
Deductions will lower it, but the end-of-year surprise will be
pleasant rather than aggravating.

Another way to do this is to look at the Federal Quarterly
form…it’s self explanatory. Plug in some estimated figures and you
will get a pretty good idea of what to set aside on a weekly basis,
or whatever. Oh, and Laurie? Fire that “accountant” right now. If
they don’t know how to do this, well, you’re in trouble.

Wayne


#11

Jim,

I am not sure but I think this might be overcome by charging the
jeweler a small bench fee and not controlling the hours that they
work. Another factor that would help would be letting the jeweler
take on other work. I can already hear someone saying yes but then
the jeweler would not be there during the times I need them most or
they would be working on someone else’s work when I need them. If
this is the case and the jeweler you are renting the bench to does
not understand the value of being on the job when the work is there
than maybe another jeweler would like to rent the bench.

Just a thought

Greg DeMark
www.demarkjewelry.com


#12

Good morning everyone,

Thank you very much for so much valuable and especially
the link to the government web site. I tried finding it a couple
months ago but got lost in the governments web site, figures doesn’t
it, more bureaucracy…

I live in Connecticut and am single. I do have a small shop set up
in the basement so yes, there are deductions I can take.

My accountant is new to me but definitely been around a time or
two…but of course wants my money and is not very free with
or sites to get from so I CAN do it myself
so again, thanks for the site info.

Yes, basically I am an employee of that 32 hrs. a week situation. It
boils down to him not wanting to pony up and pay me as an employee,
it will cost him money and benefits so of course that means no
vacation time, sick time, 401k, let alone workers compensation god
forbid I get hurt on the job. If he gets caught I know he will be in
trouble but the other goldsmith who has been there for 12 years is
also a “contractor”. How the store gets away with it I do not know.
In my humble opinion, he is cheating the system…time will tell…

When I was “hired” I asked for more per hour to help ease the pain
of paying for health insurance, lack of sick time etc… and now I
am probably going to take out disability insurance, just in case.
(Any thoughts on this subject?)

I hope I answered some of the questions. Like I said this contract
stuff is very new to me and I would much prefer a W-2, oh well can’t
have everything.

Thank you all for your support, this is such an amazing place for

Laurie


#13

Kim,

From a tax standpoint it is impossible to be someone’s 32 hr/wk
private contractor. If the employer sets the time and or place, he
has an employee, period, not a private contractor. State and Federal
rules cover this, they are Draconian, and the consequences for
calling yourself a private contractor when the rules don’t fit are
severe. Tax avoidance becomes tax EVASION, for both parties, and you
are looking at BIG fines or worse.

Please, please, there is a BIG RED FLAG here.

Wayne


#14

Laurie,

You are on the right track in your choice to consult with an
accountant. I use a certified public accountant and business
consultant firm for taxes. I love the woman who works with me she is
a brilliant artist who works with the firm three days a week so she
understands the creative mind. She was recommended by word of mouth
because I checked with numerous artists. Her husband works at and
brokerage firm so she is extremely well versed in the investment
world. She is my tax specialist not my financial adviser (I have
someone else for that job) however she will occasionally give me some
things to think about regarding investment from a tax point of view.
When you pay estimated taxes if your estimates are off by certain
percentage you will be required to pay a penalty and I don’t know
about you but I only want to pay what I owe. Because this is your
first year paying estimated taxes it will be harder to know how much
to pay quarterly. You need a tax specialist that can look at your
entire tax picture and give you a figure to pay quarterly rather than
a percentage of your income. You have to consider investment income
and deductions and each year the rules change slightly.

Often in metropolitan areas there are service organizations with
retired business professionals who work with clients for free or
modest fees this can be extremely helpful when you are just starting
in the business world. You are so wise to be asking for suggestions
how to go about making your tax decisions to be successful and
accurate. I wish you the very best.

Regards,
Cathy Wheless


#15

Hi

It's basically double-taxation and if not planned for very well,
can really mess up the first few months of each year trying to
scrabble up enough money to make up the amount(s) owed. 

This is not a true statement, although I have heard many other
people say it. A person who is self-employed (in the US) has to
declare the income from their business on a Schedule C or K1 (for
partnerships and certain LLC’s). In addition to these, a form called
a Schedule SE should be filed. This form takes the amount of
self-employment tax and multiplies it by.5. The resulting credit for
1/2 self-employment tax gets put on line 27, section Adjusted Gross
Income, on the front page of the individual’s form 1040. There is no
double taxation.

A note to those who prepare their own taxes. When you are plugging
the income and expense numbers into your Schedule C, Quickbooks would
automatically import the correct numbers into your Schedule SE and
1040. Quickbooks really is a good program to use if you want to
navigate taxes by yourself. One option might be to hire an accountant
for your first year. You then would have an example to use if you
want to try to do it on your own after that.

Kim


#16
When I was "hired" I asked for more per hour to help ease the pain
of paying for health insurance, lack of sick time etc... and now I
am probably going to take out disability insurance, just in case.
(Any thoughts on this subject?) 

I’m not an accountant and I’m not going to pretend to be. My first
thought reading your original post, though, was echoed by others -
get a real accountant…He/she should know ALL of this already, and
he/she should tell you ALL about it - that’s what you’re paying them
for. If you get hurt on the job, the owner is liable for that whether
they like it, want it, or even care or not. Maybe the place is not a
bad place to work even though the finances are Mickey Mouse. But
there’s also a matter of responsibility and liablility. He is
required by every law on earth to insure anyone and everyone who’s
inside his business - workers, customers, dogs and cats. Evading
taxes (face it) is his risk, and a foolish one, too. If you scratch
your finger and file a claim, the state might shut him down if he’s
uninsured, not to mention that any court will find in your favor. The
employment commissions of all states do not take these things
lightly. If you call them, in your state, they will explain it all to
you, as it applies to you, in my experience without “ratting” on your
employer. You might even point out to him, in a friendly way, that
he’s playing with fire on every level. One phone call from a
disgruntled (love that word…) employee and he’s in deeeeeep doodoo.
Someone described the Viet Nam war as “Death sneaks up on you like a
windshield sneaks up on a bug”. The IRS is like that, too. And the
agencies who take care of employee liability.

http://www.donivanandmaggiora.com


#17
A note to those who prepare their own taxes. When you are plugging
the income and expense numbers into your Schedule C, Quickbooks
would automatically import the correct numbers into your Schedule
SE and 1040. 

Sorry for the type error. I was referring to Turbotax, not
Quickbooks


#18

Hi Wayne

From a tax standpoint it is impossible to be someone's 32 hr/wk
private contractor. If the employer sets the time and or place, he
has an employee, period, not a private contractor. State and
Federal rules cover this, 

Thanks for pointing this out. I feel like kind of a knucklehead.
When my father had a stroke on the jobsite 5 years ago, he was being
paid as a 32-plus hour/week subcontractor. The company had done a
fire rehire type thing. Your answer clears up a lot of questions for
me. At the hospital, his employers kept showing up, lying and
claiming to be his brother so they could get into the ICU to see him.
I couldn’t figure it out. He told me they were just really good
people and they wanted to make sure he was alright. They kept paying
him for a long, long time, even though he never worked again. Now I
understand why they were so nice. I wonder what the statute of
limitations is. I think I will find out. Being distraught at the time
this was going on, I didn’t have the faculties to look at the big
picture. People suck. Thanks so much for telling me this.

Kim


#19

Wayne,

You stated:

Tax avoidance becomes tax EVASION, for both parties, and you are
looking at BIG fines or worse. 

I AM paying taxes and not avoiding anything on the money I earn from
my “contract” job plus anything else I earn privately. I know about
the penalties and have no intention of paying the government
anything else, heaven knows they take way to much from all of us!

Thanks for the concern…

Here is a new question…

How many of you that are self employed have disability insurance and
what are your thoughts on the subject.

Laurie


#20

Laurie,

I’m going to say this again, please listen.

When questions arise as to whether a person is an employee or
private contractor, the IRS use IRS Form SS8 to help make that
determination. It is filled out by the employer (one paying for your
services).

Generally, if your hours are set by the person paying, you are not a
private contractor.

If you use any of that persons tools, you are not a PC.

If the place of work is designated by that person, you are not a PC.

If you work only (or even primarily, in some cases) you are
DEFINITELY not a PC.

If you deliver to his customer, you are not a PC.

If he provides supplies like solder, metal, etc., you are not a PC.

The list goes on and on, and is subject to some interpretation, but
if it even SMELLS like the guy is calling you a C to avoid or lower
taxes, insurance, etc., both of you can come to great legal and
financial harm.

Your state also has its own separate rules, and often the state tax
people can be much more severe than the IRS.

DO NOT PLAY GAMES WITH THIS! If you are in violation you will owe
lots and lots of back taxes and penalties and be subject to criminal
penalties.

Call your state licensing division for help, they can guide you, as
can the IRS.

Wayne Emery