How much should I set aside for taxes? by Russ Shulman

Posted on Jan 11, 2016 at 9:00 PM

How much should I set aside for taxes?

Hi Russ, One question I have as I try to figure out my net income, what percentage of my gross should I be setting aside for income taxes each month? Is 20% enough? Thanks, Tanya

My initial response: The standard rule the IRS uses is you should set aside 100% of last year's tax, or 90% of this year's tax estimate, whichever is less. Basically, if you are doing better this year, then send in what you owed last year. If you are doing worse this year, then send in what you think you'll owe this year.

Things to consider...You will have both self-employment tax and income tax on the same money earned, so you have to estimate your tax by using the actual tax return forms to be sure youre calculations are correct.
Also, if you haven't been correctly accouting for your owner contributions, owner draws, and startup expenses, you may be paying significantly more taxes than you need to. Let a trained tax professional at least browse your return before you send it in. Russ