Set aside one quarter to one third. Put it in a high-interest savings account - I'm not suggesting you become a rate-chaser, but do shop around looking for a good rate savings account that lets you have access to the money immediately, if need be.

That's my experience. I've ended up - in two years - paying less than I have set aside. I let the balance stay earning interest until the next damn tax bill comes along, which it always will.

But talk to an accountant first.

Thanks LB. I knew that I could count on you! That's about what I was thinking. I think that I'm gonna be making a trip to see my local small business assistance center soon to discuss some ideas and see if its viable.

But it would be good for others here to weigh in! Anyone?

metamechanic you MUST have an opinion on this...and I'm guessing it's completely opposite from what I'm doing.

I am interested in this thread and have no intention of derailing it - because i want to know too - but, along similar lines...

anyone have advice for filing taxes for moonlighting jobs? is there a radar line that you can stay under as a rule of thumb to generally avoid...uh, you know...uh, filing? i mean is one basement remodel enough to worry about?

yep. What LB says. I put 1/3 aside in a savings account that earns decent interest. My accountant takes a closer look at things after Q3 to see if things need to be adjusted for our Q4 payment in January.

as an independent contractor, i actually pay my taxes quarterly to avoid late-fees and penalties. my quarterly payment is 1/4th of of 25% of my expected income, based on 2006 for this years taxes, and then based on 2008 for next year's.

mighty, you mean 25% OR 1/4, right? Not 1/4 of 1/4?

funkitecture, of course you legally *have* to claim the income, but in reality one basement remodel probably won't bring the IRS down on you.

funkitecture, if your moonlighting, and make more than $10k a year, you will have to report any income from moonlighting to Uncle Sam, and he will promptly take his cut. I am ruing tax season this year, as I will have to file for the first time really and I have my own startup to worry about. I didn't file last year, because I didn't see any slots for scholarship money on the 1040 and I assumed, likely erroneously, that uncle sam didn't need to know and made about 15k plus the scholarship.

Uncle Sam is the finest pimp i have ever known.

lb - i pay my taxes quarterly, and i figure my annual tax bill to be 25% of my total income.

so out of that estimated 25%, i pay 1/4th each quarter.

Ah...sorry, of course. I misread it!

you are going to have to pay taxes on that scholarship, IRS will mail you a notice, the school reports it to them,

oh wait, scholarship, my brain just farted, i was thinking competition earnings

There are also SEP-IRA'a, or self employed pension plans. they vary by state, but according to my acct. you pay taxes on any money you store in the account on the way in...and then you withdraw tax-free later.

i have not yet set this up, as the till is pretty empty by the time i pay off everyone else, but i hear they are the way to go if you're self-employed.

you can still manage the funds in your SEP, and have them go in an ING account, some other money market account, or into the open market DOW/Jones/etc or like I've done with the rest of my investment portfolio, which is to dump them all into SRI's or Socially Responsible Investments.

it's only been about three months, but amid all the turmoil of the past 12 weeks (sub-prime credit problems, job losses, weakened economy, etc.) they've barely dropped 0.5%, so no complaints thus far.

(also - like meta said, this is second-hand knowledge from my accountant and financial advisors, so don't quote me!)

thanks for the heads up aseid, i just don't know how im gonna pay up by the 15th, I mean I hardly make any money, and all my scholarship money goes home to help my parents..

previous post from meta - doesn't matter if you incorporate or anything else as a licensed architect, you can be held personally liable and only e&o insurance will protect you. but after many many discussions with attorneys about this and personal experience, it is very unlikely you will end up in court over modest projects (anything residential you're likely to do as a sole proprietor).

I would say for tax purposes stay a sole proprietor unless you are making a good amount of money. This is because it is far simpler in terms of setting up accounts, taxes, etc. I've dealt with both partnerships and s-corp, and the more involved the business entity the more work it is. You can always get more complicated, but you can't really go back. The benefit of an s-corp is that you don't have to pay the self-employment tax on all of your income, but it does cost to incorporate, file the yearly paperwork, plus corporate taxes... you'd have to ask your accountant at what point it would make sense to switch to an s-corp, I would say maybe 80K/year?

our experience has also been that about 25% ends up going to taxes, though some years it has been less depending on income/expenses.

Apu you don't have to pay by the 15th (you're supposed to of course but), if you figure out what you owe and file your tax return, you can call the IRS and get on a payment plan.

Also as was stated, if you're self employed YOU CAN NOW CLAIM DEDUCTIONS. As I found in my first few years I had very little income, but all the expenses, this actually works out in your favor tax wise. My first year I piad almost nothing in taxes my second year is going to be more but not nearly the one third of my income that employees pay. In theory a business can operate at a loss meaning no taxes. You have to be funding it somehow, lots of capital but you're just not profitable, a trust fund, a sugar moma whatever.

Your first year there are also certain "Startup costs" that you can write off but only that first year. Your computer, the portion of your phone bill that is used for work, if you work from home your rent for your office as a percentage of the toal square footage all that is deductible. So make a list.

Also go find an accountat. It will cost you a couple hundred dollars, but they will save you thousands, and make sure you do it correctly so you aren't having to come up with additional money and late fees later.

YES!

Schedule C

Good Accountant that knows how to "drive".......priceless

btw, the not being profitable thing is troublesome after the first year, hard to justify the "reason to be" of the business if no profit exists, then its a hobby

must claim some net revenue

RA Rudolph, my accountant said exactly that - at $80K+ per year you're getting to be a good candidate for an s-corp.

good to hear I am not completely making things up... sort of feels that way sometimes now that we are closing the company :-(

but for those of you out there contemplating the jump, though in the end we didn't make much money we have learned a LOT, and so far it seems to have paid off in terms of salaries being offered as we go back to work for others.

meta - would be interested to know more details about what your employer was sued for and why the attorney said that.
perhaps it is the state you are in? because in CA you can't form an LLC if you are licensed, and from my understanding (once again, not having gone through a lawsuit but been threatened with them and had many dicsussions with attorneys, both specializing in construction as well as family members), and I don't see how any of those business entities would protect you from professional practice lawsuits/negligence. As far as I know it would only protect you from money owed to suppliers, credit cards and the like...