# Tax Payments as a Sole Proprietor



## dalessandro12 (May 27, 2008)

Im recently create a business as a sole proprietor. Do I have to pay quarterly estimated taxes? If so, how is this calculated? Is it a portion self employment tax or is it a completely different tax? 

Any help is appreciated. 

Daniel


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## UglyCook (Apr 30, 2008)

If you expect to have a profit at year's end, you should begin making quarterly payments. If you expect to owe less than $1000 you can wait and pay it by April 15th of next year. I usually recommend that people who have another source of income set aside 30% of everything they make. That way you will have enough to pay taxes and yourself next year. Re-investing it all can come back to bite you if you aren't don't project accurately, which is pretty hard to do.


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## COEDS (Oct 4, 2006)

UglyCook said:


> If you expect to have a profit at year's end, you should begin making quarterly payments. If you expect to owe less than $1000 you can wait and pay it by April 15th of next year. I usually recommend that people who have another source of income set aside 30% of everything they make. That way you will have enough to pay taxes and yourself next year. Re-investing it all can come back to bite you if you aren't don't project accurately, which is pretty hard to do.


 That's great advice Julie, I would add save all receipts and keep track of mileage. I encourage you to keep track of all expenses, this will help you at the end of the year. ...... JB


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## dalessandro12 (May 27, 2008)

Julie, 

Thank you for the reply. I am employed full time but my wife is not and we are co-owning the company. 

So you recommend that we set aside 30% of the business profits? Seeing as though we are just starting up, I don't really anticipate more that $1000 in taxes the first year, especially after deductions. 

So basically, if I expect to make ANY profit AND I expect to owe more than $1000 in taxes, then I make the quarterly payments? 

From what I have read, in years 2 and on I can estimate by paying over 90% to 105% of the previous years taxes. Is this a correct assumption? 

Again thanks for clarifying the ins and outs of the business for me.


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## UglyCook (Apr 30, 2008)

Actually, I recommend setting aside 30% of the INCOME, not necessarily the profit. You see, you probably won't be making much profit at first and setting aside enough for taxes and paying yourself will help you to set realistic prices. Put the 30% in a savings account so that you have it and aren't tempted to re-invest it. 

Do you have a business plan? Have you projected your sales for the next 6 months? That will help you guess at your anticipated profit for tax purposes. If you don't expect to make much, but to show some profit, you can also increase your W2 with holding at your full time job to cover it. As long as you are even at the end of the year, you don't have to worry about the estimated payments. However, if you owe more than $1000, then the IRS starts looking at when you earned it.


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## lizziemaxine (Nov 14, 2007)

dalessandro12 said:


> Im recently create a business as a sole proprietor. Do I have to pay quarterly estimated taxes? If so, how is this calculated? Is it a portion self employment tax or is it a completely different tax?
> 
> Any help is appreciated.
> 
> Daniel


It would be well worth the money to meet with a CPA to make sure you are doing it correctly from the start. There is more to it than just federal income tax. What are your state's requirements tax-wise?


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## acrazyfool (May 17, 2008)

That's a good question as well. And how to handle multi-state sales taxes, too. Something that starts off so easily sure becomes complicated fast!


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## UglyCook (Apr 30, 2008)

Yes, requirements for the states vary and should be looked into. I also highly recommend meeting with a qualified CPA. Remember that CPAs don't have to stay current with tax law so be sure to ask what the CPA does to stay up to date in the area of taxes, especially in the case of small businesses.


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## binki (Jul 16, 2006)

If you are in the USA then here is an answer for you.

There is a safe haven withholding law. If you withhold either via payroll deductions or estimated taxes 90% of what you owe or 100% of what you paid the previous year, you will not be penalized. The safe haven increases to 110% of what you paid the previous year if your agi is over $150K for MFJ. 

If you have State income taxes, you will need to consider that as well. 

Now that that is out of the way, If you do estimated, some of that will be applied to FICA. You will do the calculation at tax prep time.


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## acrazyfool (May 17, 2008)

I did find that selling across state lines does not require the collection of state sales taxes. Only if the state you live in requires state sales taxes do need to collect them there.


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## stuffnthingz (Oct 1, 2007)

Not to muddy the waters too much, but a few states have implemented a new law that is called Destination sales tax. So starting in July for all Washington state businesses, if I sell and ship product to another location in Washington, I have to collect the sales tax amount for the destination... its a real PITA


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## lynnioz (Jun 12, 2008)

Why not take ALL sales tax collected & put them in a separate account & then the funds are there to pay the taxes? I figure I know it's not my money so I'm setting it aside for the reason it was collected. In Ohio you pay your sales tax on the 23rd of every month. If you have no sales then you enter "0" & mail in the form. Thanks.


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## baumwolle (Mar 4, 2006)

ack...2nd quarter estimated payments are due today! i always forget when the 15th falls on the weekend.


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## cruisertoy (Jun 15, 2007)

I would also recomend getting with a cpa early on if not before starting your business. Make sure they specialize in small business and personal taxes. There are a lot of tax issues that can be beneficial to you as well.


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## COEDS (Oct 4, 2006)

cruisertoy said:


> I would also recomend getting with a cpa early on if not before starting your business. Make sure they specialize in small business and personal taxes. There are a lot of tax issues that can be beneficial to you as well.


Great advice Trent, I know I did this and it helped me get allthe ducks in a row, not to mention nice tax returns for a few years. ...... JB


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