If I'm freelancing, how much should I set aside for income tax?

What are quarterly payments?

***Thread***
Find your estimated income in this table - include all sources of income: from your 9-5, PROFIT from freelancing or a business, and taxable investments:
So say you are single and your total taxable income is going to be $80k. You would be 22% above.

Then add in 15% for self-employment income tax on any profits from a business/freelancing. THIS DROPS TO 3% AFTER $131K.

Then add in your state tax - 0 to 7% for most of you.
So if you are single, making 60k from a 9-5 and 20k from a side hustle and you live in Florida...

On your side hustle PROFIT, you should set aside:

-22% Federal Income Tax +
-15% Self Employment Income Tax +
-0% No Florida State tax

=37%
If not cash strapped, 30% is usually a good rule of thumb because it often covers most of what you need.

If you are bad with money, go 40% and that should often give you a little something left over.

Keep in mind this is NOT on your W-2/9-5 income.

Profit is AFTER expenses.
Quarterly payments.

The IRS (and possibly your state) expect you to make tax payments through out the year.

If you have a 9-5 this is done via your paycheck withholdings. Just consider side hustle income in your Form W-4.
If you only have business or freelance income, you typically don't have paycheck withholdings (unless paying yourself, e.g., in an S Corp).

These payments are made via Form 1040-ES:

irs.gov/pub/irs-pdf/f1…
If it bothers you that you are having to pay 30-40% of your profit in tax, know that there are ways to reduce this.

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More from @AskForTaxAdvice

17 Oct
Get PAID to go on VACATION using the tax code!!!

Two simultaneous transactions: one generates a tax DEDUCTION and one generates TAX-FREE INCOME.

This might be my second favorite thread I’ve ever written!

Let’s bounce this through all of our friends via like/RT!!

***THREAD****
First, the DEDUCTION:

Vacations might have airfare, lodging, and food costs in the $1,000s or more.

In general, none of this is deductible.

BUT!!!

When I'm on vacation, I like to be on vacation, but I know how most of us on MoneyTwit are...
You are going to spend a couple hours per day working, even while on vacation.

Even more, at the resort bar or the pool, you are going to be naturally networking and making connections. Talking shop.

You might even be there looking at property to buy and rent out.
Read 10 tweets
17 Oct
Save $1,000 per year in tax!

Rent your home to your business, no more than 14 days per year.

This one has some hoops to jump through, but doable...

***Thread***
In general, renting your home creates taxable income to you.

In the US there is a 14-day exception:

Rent your home no more than 14 days in a tax year and you don't have to report the income.
If you have a business where you would occasionally rent out space for meetings/other reasons and your home is sufficient, you can charge your business (a deduction) and not pick up any income to yourself (if under 14 days).

Here is an example:
Read 7 tweets
17 Oct
How to hire Patrick the Tax Advisor

I get asked this question DAILY.

I'll be honest, it's possible, but difficult.

Here's how to increase your odds.

***Thread***
1) Table Stakes: Follow me. I'm committed to Money Twit, but even more committed to those who follow my account.

2) Share my threads with others. If you are commenting, liking, and RTing my stuff. I'm naturally going to pay more attention to you.
3) DM me or use my "ask a question" link in my bio.

Ask me anything you want.

Don't apologize. I'm here to help.

I've made several friends via DM. They will of course have my attention.
Read 7 tweets
9 Oct
How to get to ZERO income tax.

This will cover ANYONE in the WORLD.

HUGE VALUE THREAD!

THIS IS MY CURRENT TWITTER MAGNUM OPUS.

Bookmark this, print it out, mark it up, don't try to get through it all today, and for f*ck's sake RT it so EVERYONE can benefit!!!

***THREAD***
Section 1: The basics

Income tax is based on income

Your wealth, your sales, and your ad spend don't have income tax.

Your income/profit does, BUT not all income is taxable.

So first, if you want to get to ZERO income tax, you need to get to ZERO TAXABLE INCOME.
So how do you get to zero taxable income?

There are two ways.

Subject yourself to jurisdictions that do NOT tax income.

OR

Only have income that your jurisdiction does NOT tax.
Read 42 tweets
9 Oct
You asked for this with 250 Likes!

As promised, here's how to avoid the NASTY situation with the IRS described below.

Don't fall prey to a sideways situations on an IRS AUDIT of your side hustle!

and AVOID PENALTIES!
Step 1 - Use the right tax treatment on your transactions.

Learn some tax or hire someone.

I'm not promoting myself here because I'm not currently taking clients.

I don't tinker with my car's powertrain or grow my own penicillin to fight a sinus infection.

Hire a tax person.
It doesn't cost that much and they usually pay for themselves in stuff you would miss.

@DaveRamsey even says this and who is cheaper than him?!

If you just have to DIY, then learn some tax. Take a little course. Read a book. Not recommended, but might be better than nothing.
Read 17 tweets
27 Sep
Tax Loophole Alert!

Are you handy? Do you like interior design? Have you considered (or do you currently) flipping residential real estate?

Here's how to pay ZERO tax on your real estate flips!

***Thread***
Buy your fixer-upper house to flip.

Move in.

Make repairs and upgrades. Do whatever you do when you flip a house.

Stay exactly two years (or more).

Sell for a huge gain.

Pay $0 tax on the gain!

Repeat every two years.

It's called the home sale exclusion.
Think about it...

If your sole income is from flipping residential real estate, you could have a 0% tax rate (US).

Insane!

Q: How many times can I do this?

A: Once every two years. No lifetime limit.

If this was valuable to you, please RT so your friends can see it, too.
Read 4 tweets

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