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Message
Tax Question
Posted on 3/8/16 at 9:11 am
Posted on 3/8/16 at 9:11 am
let's say that this year I will be scrapping the bottom of the top tax bracket
married filing jointly
live in Mississippi
I'm a 1099 independent contractor
what I'm doing is saving 35% a month of my total income for federal taxes and 5% a month for state taxes, so 40% of my total income is being put away for taxes.
I do hire an accountant for my taxes and I pay my estimated taxes quarterly.
Is this saving enough for yearly taxes?
married filing jointly
live in Mississippi
I'm a 1099 independent contractor
what I'm doing is saving 35% a month of my total income for federal taxes and 5% a month for state taxes, so 40% of my total income is being put away for taxes.
I do hire an accountant for my taxes and I pay my estimated taxes quarterly.
Is this saving enough for yearly taxes?
Posted on 3/8/16 at 9:26 am to white perch
If your accountant hasn't answered your question then you should get a better accountant.
Posted on 3/8/16 at 9:26 am to white perch
Because you are, in effect, self-employed, you will have to pay both the employee's and employer's share of social security + Medicaid + Medicare taxes ("payroll taxes").
That is approximately 15% of your 1099 earnings.
So, if you're putting aside 35% for "federal taxes" that leaves you with 20% to cover your federal income tax liability, although you get a deduction for 1/2 of what you pay in payroll taxes from your federal taxable income.
Also, do you have work related expenses that you can deduct from your 1099 income? That makes a difference in your taxable income.
If you are near the top bracket, then 20% "withholding" is possibly not quite enough to cover your federal income taxes.
Regarding your Miss. state taxes, what is the tax bracket you think you will be in for this year? I have no knowledge of the Miss. state income tax laws so I can't offer an opinion there.
Since you have an accountant advising you on your taxes, what has he advised you? He knows more about your situation than any of us on here would know.
That is approximately 15% of your 1099 earnings.
So, if you're putting aside 35% for "federal taxes" that leaves you with 20% to cover your federal income tax liability, although you get a deduction for 1/2 of what you pay in payroll taxes from your federal taxable income.
Also, do you have work related expenses that you can deduct from your 1099 income? That makes a difference in your taxable income.
If you are near the top bracket, then 20% "withholding" is possibly not quite enough to cover your federal income taxes.
Regarding your Miss. state taxes, what is the tax bracket you think you will be in for this year? I have no knowledge of the Miss. state income tax laws so I can't offer an opinion there.
Since you have an accountant advising you on your taxes, what has he advised you? He knows more about your situation than any of us on here would know.
Posted on 3/8/16 at 9:33 am to LSURussian
my accountant said to save 40%
I take every deduction I can get including business expenses, SEP IRA, mileage, etc.
I take every deduction I can get including business expenses, SEP IRA, mileage, etc.
Posted on 3/8/16 at 9:49 am to white perch
quote:Let me get this straight.....you pay an accountant to advise you but instead of taking his advice you'd prefer to get tax advice from anonymous persons on a message board?
my accountant said to save 40%
Posted on 3/8/16 at 9:59 am to LSURussian
Just getting a second opinion
Posted on 3/8/16 at 10:02 am to white perch
It's not really an opinion question...it's simple money management. Figure out your MS tax rate & fed tax rates, look at last year's tax bill for your income brackets, and do the math. Consider a soloK instead of a SEP as the max contribution limits may be higher in your case. Read this: LINK Or ask your accountant to read it for you.
Posted on 3/8/16 at 10:19 am to white perch
You should setup an S Corp to save on SE tax asap.
Posted on 3/8/16 at 11:31 am to tigeralum06
quote:
You should setup an S Corp to save on SE tax asap.
This. If you are making close to $450k as an independent contractor you could easily justify paying yourself half that (probably) and save save at close to $20k is SE taxes. If you CPA hasn't discussed this find a new one asap.
You can also save additional SE taxes by paying your health insurance through the company. You pay federal taxes on the premiums (this becomes a wash on federal taxes - as you are already paying with after tax dollars) but it further reduces your SE tax liability. Again, if this has not been brought up find a new CPA.
Posted on 3/8/16 at 12:28 pm to TigerDeBaiter
quote:
This. If you are making close to $450k as an independent contractor you could easily justify paying yourself half that (probably) and save save at close to $20k is SE taxes. If you CPA hasn't discussed this find a new one asap.
he wouldn't save that much paying himself half of that because he would already hit the SS limit anyways
Posted on 3/8/16 at 2:18 pm to TigerDeBaiter
quote:
This. If you are making close to $450k as an independent contractor you could easily justify paying yourself half that (probably) and save save at close to $20k is SE taxes. If you CPA hasn't discussed this find a new one asap.
S-Corp is not always an option. You cant just pay yourself half and call it a day just because you elected to be treated as an S.
Posted on 3/8/16 at 3:14 pm to Ford Frenzy
quote:
he wouldn't save that much paying himself half of that because he would already hit the SS limit anyways
this is why i haven't set up an s corp
Posted on 3/8/16 at 5:53 pm to Poodlebrain
quote:
If your accountant hasn't answered your question then you should get a better accountant.
This is of course the correct answer but I'll add something to it. Based on what you've posted your situation is pretty trivial (or should be) to a CPA with more than about six months experience. There may be more detail that deserves more careful situation of course.
A good consultant should be able to explain to a non-pro the reasons behind the advice. This is true for accountants, lawyers, basically anyone who is an adviser to a paying client.
And sometimes it goes the other way around, some clients are beyond hope when it comes to hearing what they want to hear and ignoring what they don't want to hear.
Sometimes finding the right adviser involves a good bit of back and forth to find the right communication channels too. Good luck.
Posted on 3/9/16 at 1:35 pm to white perch
another issue with setting up an S corp is that if you're balance sheet has more liabilities than assets it will trigger capital gains on the negative basis the first year you set it up
Posted on 3/9/16 at 2:37 pm to Ford Frenzy
also ask your CPA how being a personal services corporation would effect converting to a s corp
Posted on 3/9/16 at 8:01 pm to white perch
I don't think I understand what you are asking. If you are just under the top bracket why are you putting aside 40%. Those "brackets" do not apply to your entire income. You would not be close to 40% on your entire income.
Posted on 3/10/16 at 7:50 am to highcotton2
I'm just over the top tax bracket.
Posted on 3/10/16 at 9:17 pm to white perch
quote:
I'm just over the top tax bracket.
You still would not pay that on your entire income. Only on the small portion that falls over that amount.
This post was edited on 3/10/16 at 9:20 pm
Posted on 3/10/16 at 11:00 pm to white perch
quote:
live in Mississippi
You call that living?
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