First off, thanks for the response. I really appreciate it.

I'm a one-man operation working nights and weekends. Do you think that is necessary? I apologize for not providing more up-front info.

quote:
Do you not have a CPA?

I do. I consulted her shortly before I launched the business but I got a 50,000 foot overview and not necessarily the drill down that I'm searching for here. Obviously I should call her.

quote:
Remember that you have to add The 15% social security/ Medicare to your unemployment earnings so your income tax will likely be in the neighborhood of 30% for your self employment earnings.

I have to pay social security and Medicare taxes? I am covered for insurance through my existing job and also contribute to their retirement plan which is a defined contribution plan through a state pension system. Would this impact your advice?

Again I know I am not giving you anywhere near enough info on the front end.

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Posted by baldona

Florida

Member since Feb 2016

20542 posts

Posted on 10/19/16 at 9:09 am to GFunk

Yes you still have to pay SS/ Medicare. When you are an employee your employer pays half of the Social security of 6.2%, then you as the employee pay 6.2% and you as the employee pay 2.9 Medicare. When you are self employeed you get to pay the entire thing!

I have an Llc I make half of my income through as well as a W-2 job similar to you. I do all of this. The 2nd year of being self employed you owe 90% of what you payed the previous year in estimated taxes. The first year is not a huge deal but I'm not a CPA and I don't know the penalties I think they are very small. But you should be paying some sort of estimated income tax every quarter.

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Posted by LSUFanHouston

NOLA

Member since Jul 2009

37168 posts

Posted on 10/19/16 at 9:23 am to GFunk

quote:
I have to pay social security and Medicare taxes? I am covered for insurance through my existing job and also contribute to their retirement plan which is a defined contribution plan through a state pension system. Would this impact your advice?

Your side income is self-employment income. You have to pay self-employment tax. (more on that in a minute)

Ask your CPA (or look at your tax return from 2015) and determine what your marginal tax rate is for federal. As well as state (although if you are in LA, it's going to be 6%).

I am going to assume you and your wife's other tax situations (your W-2, her W-2, your other income streams and other tax deductions) remain relatively the same.

Let's say it's 28% fed and 6% state. That would be 34%. This is not exact since you can get a federal deduction for state income tax paid if you itemize, but it's close enough for what you need. So say 34%. However, this is on net income, not gross revenue, but it doesn't sound like you have a lot of deductions so those numbers may be different. Also, keep in mind tax bracket bend points, where your marginal income jumps up.

Assuming all of your other stuff stays the same, every dollar of net profit from the business (taxable net profit) would be taxed at roughly combined 34%.

Self employment tax starts at 15.3% of 92.35% of net business income. It is the 6.2% FICA insurance for employee and employer share (12.4%) and 1.45% medicare tax for employee and employer share (2.9%). You have to pay the 2.9% medicare tax no matter what. However, the 12.4% of social security tax is still based on an overall max earnings of $118,500. You combine your W-2 social security earnings with your business earnings (but ignore your wife's W-2) and if the total exceeds $118,500, you don't have to pay the 12.4% on the amount that exceeds it.

It's going to be some trial and error, and need for projections.

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