How to Budget for Self-Employment Taxes when You Pay Annually
View All Self-employment Income as Net, Rather Than Gross
When you are working for someone else, you do not have to worry about subtracting your own taxes as well as other deductions, as all of this will be taken care of for you. You will see how much money you have earned gross and what your net income looks like after all of the taxes and other deductions have been taken out of your pay.
However, when you are self-employed, it is up to you to do the leg work. Start by viewing every source of self-employment income that you earn as net, rather than gross.
Set Aside Funds Each Month for Taxes
Once you have started viewing your self-employment earnings are net, rather than gross, you will be in a better position to budget for self-employment taxes by setting aside funds each month for taxes. Even adding more than you think you will need (if you do not know your tax bracket or you do not know how much you will owe) to the funds will not adversely affect you, as you can pocket the difference later on when you send the money off to the IRS.
Add a lump sum to a high-interest paying account such as a CD or a bond for 3-9 months and then collect on the interest when the funds mature. That way, you will have a little more money in your pocket, even as you hand over your hard earned cash to the taxman.
Budgeting for self-employment taxes should not be an afterthought for self-employed individuals. Start by viewing all your income as net, rather than gross and then set aside funds each month for taxes.
Published by Sophie S - Featured Contributor in Lifestyle
Sophie is a British expat who has been living abroad in the United States for the past 5 years. She writes on a diverse variety of subjects and is particularly interested in sharing her personal knowledge ab... View profile
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- View self-employment earnings as net, rather than gross
- Budget for self-employment taxes by setting aside funds each month
- Add a lump sum to a high-interest paying account such as a CD or a bond
1 Comments
Post a CommentA great plan!