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View Full Version : In budgeting, what is a good percentage to designate for taxes?



ParaTed2k
10-11-2010, 09:12 AM
I have a few projects that generate income, plus I run an online business. Are there any basic "rules of thumb" for what percentage I should keep for taxes?

Blessed
10-11-2010, 10:59 AM
my general rule of thumb is 25%. 15% for self-employment taxes and the other 10% for income taxes - my husband works a traditional job and does withholding so what I've saved generally becomes our "tax return" it's just been sitting in our savings account all year instead of in the IRS coffers.

Evan
10-13-2010, 02:13 PM
It depends on the type of business, and your personal situation. 25% may work for some, but if you have a spouse making $300K, it just isn't sufficient as you're in a much higher tax bracket.

I find 30% tends to be a bit safer, but it really depends on the amount of income. Keep in mind, making $100K doesn't matter on this business if you have a ton of expenses. Taxes are calculated after you subtract all of your expenses, so be sure to take that into account into this equation. Otherwise, you're over budgeting.

Evan
10-13-2010, 02:14 PM
so what I've saved generally becomes our "tax return" it's just been sitting in our savings account all year instead of in the IRS coffers.

If you end up owing more than $1,000 in federal income taxes in a year, you will probably be subjected to an underpayment penalty. It is always important to make estimated tax payments. States have much lower thresholds, but the tax rates are also much different.

nealrm
10-13-2010, 02:28 PM
Taxes are easy.
First take your money and divide it into 2 piles. Take the first pile and divide it into 3 more piles. Then take all piles and send them to the government. They will let you know what more you owe :).

As a rule of thumb, keep 30 percent aside for taxes. That should cover you with a little surplus.

ParaTed2k
10-13-2010, 03:10 PM
Thanks everyone! It will be a while before I have to worry about owing $1000 or more in taxes, so Ithink the 25% number would work best.

Nealrm... You're probably too right there! :cool:

sequoiapayroll
10-13-2010, 06:59 PM
25% is a good number, but as evan said, I would send in quarterly estimated payments if your clearing more than 2K per month...This would probably be easier on you financially in the long run anyhow.

Blessed
10-13-2010, 10:55 PM
If you end up owing more than $1,000 in federal income taxes in a year, you will probably be subjected to an underpayment penalty. It is always important to make estimated tax payments. States have much lower thresholds, but the tax rates are also much different.

We usually still get a return but thanks for pointing this out Evan - to this point my income has not been significant enough to really worry about. And my husband's withholdings have been sufficient. I'm assuming this is because I am a sole-propreitor and we file our taxes jointly. In my business I don't have all that many expenses to bring my gross income down, but I do take advantage of the few things I do have!

Do you have any other advice for my general situation?

Blessed
10-13-2010, 10:57 PM
25% is a good number, but as evan said, I would send in quarterly estimated payments if your clearing more than 2K per month...This would probably be easier on you financially in the long run anyhow.

I'm not to that point yet! But this year has been better than last year was, a lot better! So I might ought to rethink this tax-paying strategy for the 2011 tax year.

ParaTed2k
10-14-2010, 12:38 AM
I'm at the same point as Blessed, but soon I will be up there, paying them taxes like a good capitalist! :~D

brata
10-14-2010, 10:38 AM
We usually keep 30% of every dollar aside for tax purposes - that's not how much we pay, but it's better to overcompensate in case there was ever any miscalculation.