I just got a job as an independent contractor, how much (% wise ) should i hold out to cover taxes?
I would set aside at least 30% for fed, state, and everything else.
I would strongly recommend setting up a second bank account for tax purposes only. Put (or transfer) 30-35% each pay period to cover taxes. This way, you're less likely to spend money that isn't yours (and still have it available for an emergency) and also..you may save a few bucks if you socked away a bit extra.
Also, keep track of mileage and other expenses...computers, phones, communications etc. They add up quickly.
how much do you anticpate making? Income levels determine tax brackets. A safe bet is between 25%-33%. Might as well go higher like 33% and if you dont have to pay it all in taxes, you can invest the rest, take a vacation or save it for a rainy day.
no kids. basically 15% federal
and 10% income state tax
here in alabama anyway
for a 50 k income
I'd take out 15-20% to be sure, BUT you can look on an old income tax booklet and it will tell you how much you will be taxed based on your income. It's a table chart.
Remember, if you're self-employed, you have to pay not only YOUR share of income taxes, but a share that your employer would normally pay as a payroll tax. Also social security, too!
(But also remember that you can deduct a lot from earned income as well that may count as "business expenses.")
This is something you should see an accountant or an attorney about. $100 early could save you thousands later on. They'll help you with forms, reporting requirements, and other valuable information.
If you are being paid as a 1099 worker, then you'll want to set aside at least 20% for federal income taxes, and both the employer and employee portions of Social Security (6.2% each).
If you just got a job as an "independent contractor" it is assumed that you at one time or another, worked for an employer who took the out appropriate deductions. If your salary as an independent is near the same as when you worked for an employer, just estimate. Otherwise, it may be well to set aside at least 1/3 of your earnings just be be safe.
What does "hold out" mean? You pay taxes based on your income at the end of the year. As an IC, the people who give you money for your services don't pay any taxes on your behalf. If you "just got" the "job", you should probably anticipate not making enough money your first year to have to worry too much about paying taxes. If this is a new business, most states allow for start up costs when filing your return that bring your wages down below the tax paying income level. If you use an accountant to do your taxes, you can deduct the cost of that too.
im in dallas, and i was an independent contractor for the last 5 years. your question isnt detailed enough to get an accurate answer. for instance, you could be selling mary kay, and not need to hold out anything, or like i did, you could be in media distribution. i ran a crew of 22, which made a very big difference to my tax situation. either email me and let me know what field youre in and your anticipated income, or go get an accountant.
With no income tax in Texas, a simple way to do it would be to withhold 15% FICA and 15% for federal income tax. That should more than cover you up to $50,000 of income. After a few months, review what you have made, project what you will make for the rest of the year and adjust accordingly. These numbers should keep you on the safe side if you are a single earner household with standard deductions. If you have a lot of deductions, these numbers may be a little high. On the back side, if you are filing jointly with another wage-earner making $40,-50,000 or more, then you will need to hold back a good bit more.
Remember not to withhold this percentage on the total income you receive if a large portion of that income will be used for materials, additional labor, or other business expenses. The percentages above should only be applied to what you expect to show as income for you after business expenses.
If you anticipate making more than $50,000, raise the 15% in federal taxes by 2% for every $10,000. $50k = 15% $60k = 17%...$100k = 25%. Again, start by withholding these numbers and adjust after you get some experience. You can fall short a little bit and not get penalized, but you don't want a big payment at tax time.
Living in Ohio I used to bank on 22 1/2%. I would suggest you call a CPA in TX and ask, they know more about the local taxes, etc.
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