How do you figure out how much to set aside for taxes if you are self employed?

A person whose income is mostly (or all) from self-employment must make estimated tax payments. The amount of the estimated payments is computed using Form 1040-ES. There are four payments for each year, usually due April 15, June 15, and September 15 of that year, and January 15 of the following year. Dates falling on a weekend or holiday are extended until the next business day. In rare cases (such as the September 2001 payment, which would have been due only a few days after 9/11), further extensions are granted due to extraordinary circumstances (9/11, natural disasters, etc.) at the discretion of the government.

They are not allowed to hold onto all of the money until they file, and will be penalized if they do.

If you are self employed you should file Form 1040-ES quarterly if you owe more than $1000 more than you have paid for the year in estimated taxes so far that year. Basically you need to be caught up to within $1000 of tax you would owe for the year by the last quarterly payment due Jan 15 of the following year OR you would need to file and pay any tax due by Jan 31. If you go beyond that and owe more than $1000 you could get hit with under withholding penalty if you do not meet one of the few exceptions.

But I think they give you a break the first year with quarterly estimates. You may want to play around with 2008 tax forms based on estimated annual income to see roughly what you might owe each quarter.

Federal anywhere from 10 to 25%

Social Security 15%

Medicare 3%

State Taxes 5 to 10%

Federal and state taxing authority websites have charts listing the tax due by income

28% Fed is a secure selection. keep in mind that the 28% fee purely kicks in above a definite earnings point - seem at a 2006 tax table and spot for your self, and which you're taxed at 0% and 15% brackets alongside the way. So in the journey that your earnings could desire to upward push to the place you pay greater advantageous than 28% on your very final funds earned for the 300 and sixty 5 days, the decrease brackets could desire to cover you. in the journey that your earnings is that best, nevertheless, you will could desire to record quarterly returns and pay taxes quarterly. I forgot to show the self employment tax, that's around 12.5%. solid success with the consulting.

You will report your income and expenses on schedule C or C-EZ (Form 1040). Then you put net income (or loss) on line 12 of Form 1040. This income is subject to SE tax at 15.3% (this is shown on line 57 of Form 1040). Half of SE tax is deductible on line 27 of Form 1040.