Contract workers (USA): how do you calculate how many $$ to put away for taxes?

2 points by vkuruthers 7 years ago | 5 comments

For people doing contract work in the USA who are working on a corp to corp basis, how are you calculating how many $$$ per month to put away for taxes for next tax season, and what is your preferred way of "parking" that $$$ so it earns some good interest?

Finnucane 7 years ago |

When I was freelancing I'd put a third of every client payment in a separate savings account. Wasn't really a sophisticated calculation, just making sure the money was set aside. As pointed out below, the need to make payments out of that account limits you to liquid cash accounts. Putting that money into a risky account to get a little extra interest seems like asking for trouble in the long term.

Gibbon1 7 years ago | |

I also withheld a third and it was good enough. I would deposit checks in a business account and then transfer 2/3 of the amount to savings. I'd also pay for anything business related from the business checking account/card.

beauzero 7 years ago |

You can't really "park" it because you are supposed to file taxes every quarter. I do between 50% and 33% depending upon the needs at home. NEVER less than 33%. It used to be 40% but with the Trump tax law changes now we go as shallow as 33%. We bill once a month.

vkuruthers 7 years ago | |

Thanks for the response. Do you have any recommendations for tax software, or do you have your accountant handle tax payments? I'm a sole proprietor now but am going to upgrade to an LLC soon.

WhiteOwlLion 7 years ago | | |

Filing for sole proprietor is really easy. You just make estimated tax payments. It really depends on how much income you generate. If you file quarterly, you're doing well I think.

Accountant can do more than taxes, so they are more like a business ally. Tax agents can file taxes for you and represent you if there's any tax issues.

I've been able to get by with Quicken & TurboTax for sole proprietor.

For LLC, hard to say. QuickBooks desktop or online seem to be the most common. It really depends on how complicated your business needs are I think.