Plan on 30% to 40% of net income going for taxes.

June, thanks for your response, Cruising Both Ways . In reply, I absolutely knew I would owe money to the IRS but this year seems to be particularly outrageous. I have no problem paying my taxes (as I have done for my entire working life - the last nine on cruise ships)...as long as it seems within reason.

I made $21,000 last year and only $8,000 of that was from 1099s from the cruise ship job. The remaining income was from my land based job I worked for 9 months and from which all my taxes were deducted.

What I find unbelievable is that I owe $1,800 in taxes!!! And how is it that I am being taxed on income ($11,000 from my land based job) that I've already paid taxes on?

How can someone who makes so little money owe so much? My tax guy said it's because of my land job that I owe so much as it put me in a higher tax bracket. What??? I made $21,000!!! That's nothing! I just can't believe that someone living close to the poverty level would be liable for so much. So, in essence, doesn't $1,800 on $8,000 seem a bit much?

Thanks for your time.

Regards,
Paige



Dear Paige,

I understand your incredulity. Let me explain. Although I may make it clear I can't make you feel better. Wish I could.

Income tax is calculated on entire income. Wages, dividends, alimony, net self-employment income, jury duty pay, etc. are all added together. Were someone to receive a lot of dividends [not this year, of course] or alimony, no tax would have been withheld on that income. If no estimateds had been paid tax would be owed at year-end.

Let's say you made $20,000 in salary but your withholding were incorrectly set for a $10,000 income. You'd owe taxes at year-end. Or conversely were you over withheld as if you were earning $40,000 a year -- you'd get a refund at year-end.

In your case, nothing was withheld on your $8,000 freelance income. If your income tax rate is 7 1/2 % then you'd owe $600 income tax on the $8,000 income.

In addition to that you must pay Medicare and social security tax on your freelance income. That's approximately 15%. $8,000 times 15% = $1,200.

Add them up you get: $600 + $1,200 = $1800.

As a general rule of thumb, I suggest that indies plan to pay 30% to 40% of their net self-employed income on taxes.

Here's more info on taxes .

Best,
June