How to figure self-employment tax?
March 15, 2007 7:48 AM Subscribe
How to do a quick and dirty estimate of self-employment tax?
Is there a simple way to determine how much of my self-employment income to hold back for taxes, assuming I have a good estimate of what the gross income will be? 35%? 40%? Something else?
Is there a simple way to determine how much of my self-employment income to hold back for taxes, assuming I have a good estimate of what the gross income will be? 35%? 40%? Something else?
What backupjesus said. "Quick and dirty" all depends on what the actual numbers are because there are multiple tax brackets. You are much better off using their form.
I usually double-check my figures in January by plugging my actual year end numbers into a 1040-ES. I think there is one in Pub 505, linked above. If not it is downloadable from the IRS as a PDF. If I am substantially off, I can still avoid penalties by making an oversized Q4 Estimated Tax payment before January 15. Not that it helps you now, but worth thinking about next year.
posted by ilsa at 8:22 AM on March 15, 2007
I usually double-check my figures in January by plugging my actual year end numbers into a 1040-ES. I think there is one in Pub 505, linked above. If not it is downloadable from the IRS as a PDF. If I am substantially off, I can still avoid penalties by making an oversized Q4 Estimated Tax payment before January 15. Not that it helps you now, but worth thinking about next year.
posted by ilsa at 8:22 AM on March 15, 2007
12.5%
posted by sluglicker at 9:19 AM on March 15, 2007
posted by sluglicker at 9:19 AM on March 15, 2007
always keep 1/3 in a high-interest savings account like this one. you should be fine by the end of the fiscal year.
(I am only linking this because that's how I do it, I make nothing off that link.)
posted by krautland at 12:39 PM on March 15, 2007
(I am only linking this because that's how I do it, I make nothing off that link.)
posted by krautland at 12:39 PM on March 15, 2007
Keep in mind that if most or all of your income is from self-employment, you will also be required to pay quarterly estimated taxes. You can't just stuff it into a savings account until April 15th.
posted by JackFlash at 2:49 PM on March 15, 2007 [1 favorite]
posted by JackFlash at 2:49 PM on March 15, 2007 [1 favorite]
Best answer: Excellent point, JackFlash. Even if you have relatively little self-employment income, though, you may need to pay estimated taxes to avoid underpayment penalties. I'm in the (rare and partially of my own doing) situation this year where I'll have to do estimated payments for any non-wage income I earn.
krautland's method may work if you have enough withholding from employee income (i.e., paid on a W-2 basis) to avoid underpayment penalties. It's essential, though, to do the math to see what applies in your own personal situation, both because of underpayment penalties and because of the actual tax liability. For example, if you were in the 25% bracket based on wages alone and had a business on the side, you'd need to pay roughly 40% (25% income + 15.3% self-employment) on every dollar the business earns. However, self-employement taxes would drop to 2.9% as soon as you hit the FICA wage base, which is...well, you get the idea. Do the math.
posted by backupjesus at 4:33 PM on March 15, 2007
krautland's method may work if you have enough withholding from employee income (i.e., paid on a W-2 basis) to avoid underpayment penalties. It's essential, though, to do the math to see what applies in your own personal situation, both because of underpayment penalties and because of the actual tax liability. For example, if you were in the 25% bracket based on wages alone and had a business on the side, you'd need to pay roughly 40% (25% income + 15.3% self-employment) on every dollar the business earns. However, self-employement taxes would drop to 2.9% as soon as you hit the FICA wage base, which is...well, you get the idea. Do the math.
posted by backupjesus at 4:33 PM on March 15, 2007
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Don't forget to find the similar worksheet for your state, as well.
posted by backupjesus at 8:01 AM on March 15, 2007 [1 favorite]