I don’t agree that you need to set aside 1/3 of your sales for taxes. In certain brackets, you don’t owe any income taxes at all, so your initial sales don’t require any withholding by you. The sales are offset by deductions…itemized deductions or standard deductions as well as expenses and depreciation of equipment. At some point in the year, assuming a steady and good income stream, you are going to start being liable for taxes. If you have income from other sources, you have to figure that in, too, along with any withholding if you are getting a paycheck. As far as Federal Income Tax you are going to start at a 15% rate. What you DO have to watch is your FICA, because you are responsible for that at 15.4% on your adjusted gross income. Even there, if your expenses (including depreciation) exceed your income, there’s no FICA due. When you do have an AGI, you have to pay the FICA and it needs to be paid quarterly to completely avoid penalties, in most cases. As others mentioned, you may also have a State income tax liability when you have income exceeding your expenses and you may have sales tax to pay.
Rather than assume you have a tax liability, it would make more sense to check with the authorities about sales tax liability and with your accountant about your income tax and FICA liability. Although you might not owe any taxes in the first quarter, you might want to put some money away so that your monthly salary doesn’t all of a sudden take a 30% hit when you get to the point where you do owe taxes, but your accountant should be able to help you project your income and liabilities. Some folks are completely at sea with figures and need concrete guidance, but it you can learn something about taxes, it’s very helpful in planning.
Another issue is your expenses. I was self-employed for years and was terrible at keeping track of expenses. Your rule should be to save all receipts and go through them at least weekly. Circle items that are business expenditures on receipts if you don’t use a specific account or credit card only for the business. Deduct whatever you can…paper for the printer, pens, pencils, etc. Let someone explain your “marginal tax rate” if you don’t understand that concept. It is the percentage of tax you pay on the last dollar you earn. If it is 30%, then you are getting a 30% discount on your tax bill any time you can deduct something. Buy $10 worth of paper for the printer for your business and you pay $3 less in taxes.
Just a few thoughts. Yes, your tax is likely to be at least 30% on some of your income (hence the 1/3 guideline), but it doesn’t apply to everything, which is why you need to figure your expenses, etc. to know what to do. Hope this is coherent and somewhat helpful.