Woodworking Business

You are not logged in. [ Login ] Why log in
(NOTE: Login is not required to post)

Tax question for the self-employed

10/6/20       
mauricio Member

How much of a job do you budget for taxes?......I know a guy who does drafting and he pays 25% of what he makes every quarter to the IRS. Is that the standard? 25%?........1/4th of what you get paid for every job goes to your personal income taxes?.....Is that for sole proprietor? Is it different for a corporation or if you're incorporated?

10/6/20       #2: Tax question for the self-employed ...
mike  Member

Website: http://distinctivekb.net

i roughly figure 30%. One difference is that a sole proprietor has to pay his own SS tax. All 14% (?) of it. As an employee you pay 7% and the business pays the other 7%.

So to clarify, many years my actual federal tax was minimal because children were still at home, my wifes earning were minimal as a stay-at home mom, and my income was average. But the 14% SS tax stays the same, you cant buy equipment at the end of the year to show you earned nothing as you can with the federal tax.

10/6/20       #3: Tax question for the self-employed ...
mike  Member

Website: http://distinctivekb.net

clarification after rereading your question; your friend does not likely pay 25% of what he gets for a job in taxs. He pays 25-30% of his adjusted gross income which is after all materials are paid, overhead items, trucks, equipment, and then to be honest the gov. gives alot deductions for children and families. If most of his income is from labor then he will have few deductions.

10/6/20       #4: Tax question for the self-employed ...
rich c.

That's like asking what percentage of the job is your salary. Taxes paid on salary is figured into your salary which is figured into your overhead, not a percentage of job. You calculate the job cost, then add profit and overhead.

10/6/20       #5: Tax question for the self-employed ...
Leo G Member

I take out 30% after all my deductions for the taxes sent out to federal and state governments.

10/7/20       #6: Tax question for the self-employed ...
mauricio Member

My friend doesn't have materials and trucks........he draws from home. He has a computer and a chair and no kids.

10/8/20       #7: Tax question for the self-employed ...
Paul Downs

Your friend is not paying his taxes. He is making estimated payments, which are not at all the same thing. He will be calculating his actual tax liability when he submits his 1040 in April.

The estimated payments are a way of banking money (in a non-accessible place) so that he can be sure that he has the cash required to pay his taxes when they come due. He may end up owing money or getting a refund - that will be determined after the year is over.

This is a smart and disciplined way for a self-employed person to deal with taxes. Given that bank interest rates are about zero, there's no harm in giving the money to Uncle Sam to hold. I suppose some people would rather have it in their own hands until the tax comes due, but that requires a lot of self control.

10/10/20       #8: Tax question for the self-employed ...
David B  Member

Website: http://beaconcustomwoodwork.com/

Also a self-employed person can incur a penalty by not paying estimated taxes. Unless he is withholding and submitting taxes on whatever salary he pays himself, paying estimated taxes is a requirement in order to avoid a penalty at tax time.

It's probably simpler for him to pay the estimated taxes than it would be to figure out how much to withhold and make those submittals.

10/11/20       #9: Tax question for the self-employed ...
Economics101 Member

This thread, like almost all others on any financial topic is a bit discouraging.

Why doesn't someone with tens or hundreds of thousands of dollars at risk in their business at least spend a few minutes to ascertain a few basic facts? Or maybe hire a CPA for an hour or two?

All of this stuff is available for free on the IRS.gov site. They also have free explanatory publications that they will send out if you can stand to communicate with our mortal enemy.

Having filed many Schedule C returns over the years, based on the last time I looked, a few basic things are true:

1) If you deposit (quarterly) at least 90% of what you wind up owing for the current year, there will be no late-payment penalty.

2) If you deposit 100% of your previous year's liability, there will be no late-payment penalty. No matter how much you may owe for this year.

For instance: Owed 15K for last year? Had a bang-up year this year and owe 40K but only deposited 15K? No problem. No late-payment penalty. Obviously you still owe the rest of the 40K.

3) No matter how much you owe for this year, if you're under-deposited by less than $1K there will be no late-payment penalty.

4) The penalty for underpayment of taxes is interest at whatever rate is being currently charged by the IRS. May change each quarter.

Current rate is 3% per year. Pretty minimal.

SELF-EMPLOYMENT TAX is 15.3% (anyone self-employed has to pay both the employee and employer rates of 7.65%, the tax for Social Security and Medicare) subject to minor adjustments.

The basic lowest net INCOME TAX bracket is 10%, so a single guy with less-than-stellar income and little or no overhead/expenses can safely assume that he's going to owe around 25% of any AGI over about 12,300 and make appropriate deposits.

Which just means he'll probably owe nothing or get a small refund depending on what is actually reported on his return.

Which illustrates that the "guy" in the original post is doing exactly what he should be doing. Which is more than some "guys" do, only to find out later what they should have been doing when they finally get the tax bill they can't pay a year or two later.

25% works until our "guy" makes more serious money, and still has to comply with all of the tax rules, which include escalating income tax rates.

This is not tax or legal advice of any kind. Do your own due diligence. I suspect that most here will agree that asking for tax or legal advice on a public forum makes one look cheap or silly or both and shouldn't be done. It might even be foolhardy.

I hope all of you guys on this board are doing well, Chinese flu notwithstanding!

10/15/20       #10: Tax question for the self-employed ...
Jonathan Mahnken

Website: http://www.mahnkencabinets.com

Hiring a GOOD CPA for at least some of the work is the best thing you can do.

10/26/20       #11: Tax question for the self-employed ...
Marv Member

OK. First of all, the amount of tax you pay will depend on your profit. That would be your income less expenses that are deductible.

If you are a regular corporation, your federal tax on profits will be 21%. Then add state income tax.

If you are a Sub S Corp, your income will be added to your personal taxes but you may still have to pay state taxes on these profits.

If you are a sole proprietor your federal taxes will vary. You start with 15% social security tax. This is the killer.

Then you add your income tax. It can go from 0% to 39%.

Then you add your state income tax.

I would say 25% to 30% of your profit should be paid into IRS as an estimated tax as explained above. And don't forget to pay in a state estimate also.

There is only one estimate left for 2020 and that is due January 15, 2021. Good luck.

Be sure to go to a professional to have your taxes done the first year.


Post a Response
  • Notify me of responses to this thread
  • Subscribe to email updates on this Forum
  • To receive email notification of additions to this forum thread,
    enter your name and email address, and then click the
    "Keep Me Posted" button below.

    Please Note: If you have posted a message or response,
    do not submit this request ... you are already signed up
    to receive notification!

    Your Name:
    E-Mail Address:
    Enter the correct numbers into the field below:
     

    Date of your Birth:



    Return to top of page

    Buy & Sell Exchanges | Forums | Galleries | Site Map

    FORUM GUIDELINES: Please review the guidelines below before posting at WOODWEB's Interactive Message Boards (return to top)

  • WOODWEB is a professional industrial woodworking site. Hobbyist and homeowner woodworking questions are inappropriate.
  • Messages should be kept reasonably short and on topic, relating to the focus of the forum. Responses should relate to the original question.
  • A valid email return address must be included with each message.
  • Advertising is inappropriate. The only exceptions are the Classified Ads Exchange, Machinery Exchange, Lumber Exchange, and Job Opportunities and Services Exchange. When posting listings in these areas, review the posting instructions carefully.
  • Subject lines may be edited for length and clarity.
  • "Cross posting" is not permitted. Choose the best forum for your question, and post your question at one forum only.
  • Messages requesting private responses will be removed - Forums are designed to provide information and assistance for all of our visitors. Private response requests are appropriate at WOODWEB's Exchanges and Job Opportunities and Services.
  • Messages that accuse businesses or individuals of alleged negative actions or behavior are inappropriate since WOODWEB is unable to verify or substantiate the claims.
  • Posts with the intent of soliciting answers to surveys are not appropriate. Contact WOODWEB for more information on initiating a survey.
  • Excessive forum participation by an individual upsets the balance of a healthy forum atmosphere. Individuals who excessively post responses containing marginal content will be considered repeat forum abusers.
  • Responses that initiate or support inappropriate and off-topic discussion of general politics detract from the professional woodworking focus of WOODWEB, and will be removed.
  • Participants are encouraged to use their real name when posting. Intentionally using another persons name is prohibited, and posts of this nature will be removed at WOODWEB's discretion.
  • Comments, questions, or criticisms regarding Forum policies should be directed to WOODWEB's Systems Administrator
    (return to top).

    Carefully review your message before clicking on the "Send Message" button - you will not be able to revise the message once it has been sent.

    You will be notified of responses to the message(s) you posted via email. Be sure to enter your email address correctly.

    WOODWEB's forums are a highly regarded resource for professional woodworkers. Messages and responses that are crafted in a professional and civil manner strengthen this resource. Messages that do not reflect a professional tone reduce the value of our forums.

    Messages are inappropriate when their content: is deemed libelous in nature or is based on rumor, fails to meet basic standards of decorum, contains blatant advertising or inappropriate emphasis on self promotion (return to top).

    Libel:   Posts which defame an individual or organization, or employ a tone which can be viewed as malicious in nature. Words, pictures, or cartoons which expose a person or organization to public hatred, shame, disgrace, or ridicule, or induce an ill opinion of a person or organization, are libelous.

    Improper Decorum:   Posts which are profane, inciting, disrespectful or uncivil in tone, or maliciously worded. This also includes the venting of unsubstantiated opinions. Such messages do little to illuminate a given topic, and often have the opposite effect. Constructive criticism is acceptable (return to top).

    Advertising:   The purpose of WOODWEB Forums is to provide answers, not an advertising venue. Companies participating in a Forum discussion should provide specific answers to posted questions. WOODWEB suggests that businesses include an appropriately crafted signature in order to identify their company. A well meaning post that seems to be on-topic but contains a product reference may do your business more harm than good in the Forum environment. Forum users may perceive your references to specific products as unsolicited advertising (spam) and consciously avoid your web site or services. A well-crafted signature is an appropriate way to advertise your services that will not offend potential customers. Signatures should be limited to 4-6 lines, and may contain information that identifies the type of business you're in, your URL and email address (return to top).

    Repeated Forum Abuse: Forum participants who repeatedly fail to follow WOODWEB's Forum Guidelines may encounter difficulty when attempting to post messages.

    There are often situations when the original message asks for opinions: "What is the best widget for my type of shop?". To a certain extent, the person posting the message is responsible for including specific questions within the message. An open ended question (like the one above) invites responses that may read as sales pitches. WOODWEB suggests that companies responding to such a question provide detailed and substantive replies rather than responses that read as a one-sided product promotion. It has been WOODWEB's experience that substantive responses are held in higher regard by our readers (return to top).

    The staff of WOODWEB assume no responsibility for the accuracy, content, or outcome of any posting transmitted at WOODWEB's Message Boards. Participants should undertake the use of machinery, materials and methods discussed at WOODWEB's Message Boards after considerate evaluation, and at their own risk. WOODWEB reserves the right to delete any messages it deems inappropriate. (return to top)


  • Forum Posting Help
    Your Name The name you enter in this field will be the name that appears with your post or response (return to form).
    Your Website Personal or business website links must point to the author's website. Inappropriate links will be removed without notice, and at WOODWEB's sole discretion. WOODWEB reserves the right to delete any messages with links it deems inappropriate. (return to form)
    E-Mail Address Your e-mail address will not be publicly viewable. Forum participants will be able to contact you using a contact link (included with your post) that is substituted for your actual address. You must include a valid email address in this field. (return to form)
    Subject Subject may be edited for length and clarity. Subject lines should provide an indication of the content of your post. (return to form)
    Thread Related Link and Image Guidelines Thread Related Links posted at WOODWEB's Forums and Exchanges should point to locations that provide supporting information for the topic being discussed in the current message thread. The purpose of WOODWEB Forums is to provide answers, not to serve as an advertising venue. A Thread Related Link that directs visitors to an area with inappropriate content will be removed. WOODWEB reserves the right to delete any messages with links or images it deems inappropriate. (return to form)
    Thread Related File Uploads Thread Related Files posted at WOODWEB's Forums and Exchanges should provide supporting information for the topic being discussed in the current message thread. Video Files: acceptable video formats are: .MOV .AVI .WMV .MPEG .MPG .MP4 (Image Upload Tips)   If you encounter any difficulty when uploading video files, E-mail WOODWEB for assistance. The purpose of WOODWEB Forums is to provide answers, not to serve as an advertising venue. A Thread Related File that contains inappropriate content will be removed, and uploaded files that are not directly related to the message thread will be removed. WOODWEB reserves the right to delete any messages with links, files, or images it deems inappropriate. (return to form)
    Sponsors
    • OMEC/Macoser Inc
      Exclusive Importer of European Woodworking Machinery Since 1988
    • Cabinetshop Maestro
      Web-Based Project Management Software for Custom Cabinet Shops - Manage Jobs from Prospect to Punchlist Through Scheduling, Task Management, Time Tracking and Communication
    • Rangate
      Woodworking Machinery, Supplies and Knowledge
    • ULTI-BOARD
      The Ultimate Spoilboard - ULTI-BOARD - Specifically Engineered and Formulated for the Ultimate in Spoilboard Performance - Not Your Ordinary Sheet of MDF.
    • Machine Bid
      Online auction site for buying and selling high-quality machinery. We offer a secure, online bidding platform, featuring CNC routers, Edgebanders, Sanders, and much more; new equipment added daily
    • INNERGY
      INNERGY is the ERP for woodworkers, by woodworkers. We are birth to death millwork.
    • Air Handling Systems
      Your Best Source for Dust and Fume Collection
    • WoodJobs.com Search Consultants
      Free Employment Service for Woodworking Related Job Seekers
    • Parts Cutter CNC
      CNC Cabinetry and Closet Parts
    • TradeSoft
      Seamless Management Software to Improve Estimating, Job Costing, Scheduling, Purchasing, Shipping, and Shop Floor Data Collection
    • TradeJobPlacement.com
      Individualized Placement Services, Specializing in Millwork Design Engineers
    • Better Vacuum Cups, Inc.
      Vacuum Cups for All CNC Routers As Well As Many After Market Parts for Your CNC
    • Impact Search and Placement
      Professional Employment Recruiting Specialists

    Become a Sponsor today!