Estimated Taxes
June 07, 2006
As a new sole-proprietor, I had to get up to speed on exactly how to pay my taxes, and I found that I need to start paying estimated quarterly taxes, which I’ve never had to do up until now. I’m not at a point where I can afford an accountant so I was looking for some sort of easy (yeah, right!) solution on how to do this, and I actually found one. I’ve been using WebTurboTax to pay my taxes for years, and leave it to them to come up with a service geared for the estimated taxes crowd: estimatedtaxes.com.
I followed the advice of Doug Bowman and have a bank account set up strictly for taxes. I put 30% of all incoming funds directly into this account. It took about an hour this morning to figure out what my tax payments should be (and that’s using their advanced calculator), and then I made two payments (one was a catch up payment for the first quarter of this year) and one was for this quarter, whose payment is due on June 15. Those two payments are scheduled to be automatically withdrawn from my “taxes” bank account, which keep hair-pulling and headaches to a minimum.
June 09th, 2006
Hey Ryan, good going getting this set up and figured out early on. One more loose piece of advice as you consider what percentage to save: Remember to calculate in self-employment tax of 15.3%, in addition to your normal tax bracket. Since you don’t have an employer that deducts/pays into Social Security or Medicare for you, the IRS takes a little larger chunk from anyone who works for themselves. I got stung by this my first full year of self-employment, as I was saving and paying on what I thought was the standard tax bracket for my adjusted gross income.
It doesn’t always work out to a full 15.3% more in taxes, because if you’re doing itemized deductions (almost guaranteed when you’re self-employed) you also get to deduct something like half of the total self-employment tax to further reduce your reported gross income. More about SE tax here.
Just wanted to caution you if you hadn’t already taken this into account when figuring out how much to save. In the past couple years, I have been saving between 35-40% of total revenue. Even though I only pay about 30% for estimated taxes, after coming up way short one year, I now figure it’s always better to have the extra 10% put away in my tax savings account just in case its needed come tax time. If not needed, the leftover is like a tax refund check for that year.
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June 10th, 2006
Doug, thanks for taking the time to write and pointing out the SE tax. All of this is new to me, so any advice is good advice, and particularly when it comes from someone like yourself. Congratulations on your new position at Google!
September 10th, 2006
I found your site while Googling Great Lakes Scrip.
I am also self employed as an AFLAC rep and use this link to pay my taxes.
http://eftps.gov/
You set up an account and pay whenever you want, not just quarterly. My commissions are direct deposited from HQ and then I go to this site and tell them to deduct whatever amount. It can be hard to not dip into that tax savings account when sales slow down, this way you have already sent it in. Hope that gives you some help.
Carl Foote
September 10th, 2006
@Carl: Thanks for bringing that site to my attention. I’ll have to look into that as an option.