Tax Withholding - self employed?

[Russ Filtz]

Anyone run their own business? I've been doing some consulting and haven't been paying anything out of my business account except for expense checks. Now I need to take some regular pay out, but I'm not sure how to go about withholding taxes. I know I get a quarterly unemployment form to fill from the state, so that's covered, but what about Federal and SS? I seem to remember you need to pay those through the bank, either monthly or quarterly, but what rates do you use?

I know I should get a CPA, but it's only a small amount and the fees eat into any profits too much!

[Jim Becker]

You need to file quarterly tax returns to the Feds...for the Federal Income Tax and the self-employment tax. (SS x 2) It's worth a consultation with an accountant to get your "system" set up, even if you don't use regular services from them. You do NOT want to screw up on this!

[Dennis Peacock]

Russ,

You can also use Quickbooks by Intuit....unless they call it Quicken Business Edition now. They have the correct tax table built into the software and an annual purchase of current tax tables (at least that's the way they used to do it.) keeps you current and correct. You can set yourself up to be paid as an employee (recommended) or as a consultant (not recommended) and at the end of the year? You print out your W-2 form right out of the software and do your thing. Of course it allows for monthly, quarterly, and etc taxes as well when self-employeed. Just an idea. I used to have to keep current on the payroll tax laws...but it's been about 5 years since I did that.

[Richard Wolf]

I pay quarterly esitmated taxes to the fed's. If you are only drawing a small amount of pay you may not reach the threshold where you have to pay. Like Jim points out, check with an expert, there are plenty of experts here, just in the wrong business!

Richard

[Jim DeLaney]

You make quarterly payments to the IRS, using a 1040ES form.

Ballpark amount will be 28% of your salary as income tax, plus 7.85% for the employee FICA, and 7.85% for the employer portion of the FICA - for a total of about 43% of your gross pay.

Don't underestimate the amount by too much, or the IRS penalties for insufficient pre-payment will be pretty costly. I think they only allow about a 5% leeway.

[Ernie Nyvall]

It's worth a consultation with an accountant to get your "system" set up, even if you don't use regular services from them. You do NOT want to screw up on this!

I double this and find a good accountant. I looked for a "reasonably priced one" and it cost me big time. You don't have to be trying to screw the IRS around for them to come down hard. I don't know about now, but at the time their interest could only be so much, however their penalty was wide open and they used it like a 20 pound sledge on a finish nail.

This is certainly not meant to discourage you, just to encourage you to start if off right and everything will run smoothly.

Ernie

[Peter Gavin]

on the type of business you are. I am assuming you are going to pay yourself, and not any other employees. If you do have employees then RUN to a CPA to get a payroll system set up. I was in Public Accounting for 5 plus years, and the single biggest and most common way to get into trouble with the IRS is through mistakes on employee payroll. You could also use a payroll company but in my experience they are expensive and you would lose out on the advise a CPA could give.

Assuming you are only paying yourself, then it depends on the form of organization you have set up. If you are a Schedule C filer (business profit and loss are reported on Schedule C of your personal income tax return 1040) then you are not allowed to pay yourself an official 'paycheck', rather you take 'draws' theoretically based upon the profit you are earning. In that case, you would file quarterly 1040ES with an estimate of the Federal (marginal of 0%-28% depending on ending profit), FICA (12.4%) and Medicare (2.90%) taxes you would owe at the end of the year. It is important to remember that these rate apply to the ending Profit for the year, not gross receipts. Also please note that the FICA and Medicare rates are twice the rates earlier posted because you have to pay both the employee and the employer share as a self employed individual. These same rules generally apply to partnerships, LLCs and all other forms of organizations Except for Corporations. If you are organized as a Corporation (either SubChapter C or S), let me know and I'll give a quick primer on that.

Peter

[Bob Johnson2]

If your married... My wife works for herself. I have upped my weekly deductions to cover what she makes. I've never run it specifically by a CPA but the accountant hasn't singled it out as a problem either. Been doing it for 15 years now.

[Jim O'Dell]

If your married... My wife works for herself. I have upped my weekly deductions to cover what she makes. I've never run it specifically by a CPA but the accountant hasn't singled it out as a problem either. Been doing it for 15 years now.

I did the same thing until LOML started making too much. Then OUCH!!! The penalties hurt the most. I think her SS dollars come at the end of the year.
Jim.