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Thread: How much do I set aside ?

  1. #1

    Default How much do I set aside ?

    In the process of buying a business was just wondering how much I have to set aside to pay my taxes every year or quarter what percent should I use?

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  3. #3

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    I assume you mean income taxes. In the United States, income tax rates are graduated (which means that the tax rates are higher as the total amount of annual taxable income increases). For that reason, there is no way to say what percentage of income should be paid on your quarterly estimated taxes. The percentage will vary as the total income varies.

    Also, if the business is a sole proprietorship or partnership, then there will also be self-employment due on the income. Those taxes are at a flat rate (unlike the graduated income taxes) but the portion attributed to social security tax (but not Medicare tax) phase out at $127,200 in 2017. That means that your combined tax rate will drop once you pass that threshold.

    So the answer is that you have to take everything into consideration for the year and not just pick a magic percentage.

  4. #4
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    This is one area were putting to much aside really does little harm, but putting too little aside can put you in a pinch. Setup a bank account specifically for taxes. Put in 20% of gross income. At each quarter, if you have too much in the account, reduce the percentage. If you have too little, increase the percentage. By next year you should have a very good idea of the right percentage for you. I suggest that you aim to have 5-10% more in the account that you need for taxes.
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  5. #5
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    It totally depends on two things: your total income including the new business, and how your business is organized (sole prop versus s-corp, etc). If I had to guess, it should be a minimum 20% if you are a corporation, 35% minimum if you are a sole proprietor. If you have other sources of income, it could be another 10-25% on top of that. I would hire a good CPA that deals with business taxes and let them coach you.

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