Hi Abe, How much should I be saving for my quarterly taxes?
I’m glad you’re thinking ahead! It’s recommended for independent contractors to save between 20-30% of your Net Profit for both state and federal taxes. As a reminder, your Net Profit is the difference between your Gross Revenue and your business expenses.
This is an estimated figure. In fact, that is why the IRS refers to the quarterly payments as “Estimated Tax Payments.”
Since a self-employed individual cannot determine net profit during the year, an individual tax rate cannot be established. However, 20-30% is usually the industry savings average.
Some factors could determine the amount to be saved could be: [1] tax filing status (single, married filing joint, head of household, etc.), [2] if you claim dependents, the ages of the claimed dependents, and [3] your state income tax rate.
Much like W-2 withholdings, saving 20-30% of your Net Profit to pay your quarterly estimated payments will lower your annual tax liability by the time you file.
If you need assistance in calculating what to start saving for your quarterly taxes, Abacus CPAs can help! Please call our office at 417-380-5000 to inquire about our Quarterly Estimate service.
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