Saturday, March 10, 2007

Estimated Tax: How Much To Plan For

June --

My accountant told me that, on an income of $72,000, that I should pay $6,215 every quarter as an estimated tax payment. Does that seem accurate? I have colleagues with larger client bases making more than that and paying less, so I'm confused.

Also, I'm a little intimidated since I wasn't planning for such a high tax liability. Guidance?

Jon-David, New York

Jon-David, let's look at income in relation to taxes.

Which income are you talking about? Gross income, which is all the money you bring in; or net income, which is what you have left after deducting all business expenses.

Perhaps your colleagues have a higher gross income, but because they have more expenses, or are better at keeping records of their expenses, or have a sharper tax pro, their net income is less.

As a general rule, I tell indies to plan on 30% to 40% of their net income going to taxes. It can be higher or lower than that depending on income level and state taxes. Your four payments of $6,215 equal about 34% of your $72,000 income, so that may be correct.

You can learn more about taxes in the column on my website Taxes: Which ones and how much do I pay?

Also, check out the post below, Estimated Taxes Paid Late .

-- June

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