Consulting and taxes

[zetta]

I have just started a part-time consulting job, and received my first paycheck. It's the first time I've done consulting, so I'm a little unsure how to figure out how much of each paycheck to set aside for taxes.

We're in the federal 25% marinal bracket, and with deductions have an effective tax rate (federal + CA state) of about 19%.

My husband is withholding 110% of last year's taxes through his W-4, so my understanding is we don't have to pay estimated quarterly taxes, but when April 15 comes around I expect we may owe some due to my new job.

Any advice? Should I just set aside 20-25% of each paycheck? What about social security? Would Quicken or TurboTax be of any help here?

[MonkeyMama]

I would estimate at your marginal tax rate, and maybe round up a few percent to be safe.

I just wanted to add you will be subject to self-employment tax which is basically FICA (social security). That is around 15%.

35% would be a good start, 40% would give you a bit of a cushion in case it is more.

On the flip side you can put some of it (around 25% net profits) into a SEP IRA to reduce your taxable income (but this does not reduce your FICA taxes).

I doubt Quicken would be any help. If you used Turbo tax for 2006 it may be of some help.

Congrats on the job and good luck.

[Magicman]

The IRS is your best bet for the answer

Zetta,

Congratulations on your first paycheck!

I'm sure you can find the information you need at the IRS site:

Internal Revenue Service

Best wishes with your consulting business.

Magicman