Last week, we spoke about the importance of keeping your personal bank accounts separate from your business accounts and why. When you’re earning income as a solopreneur, freelancer or consultant, it’s crucial to keep them separate.
Ideally, you deposit all professional income into a business checking account, and then pay yourself a regularly scheduled “draw,” while saving an additional 30% for taxes.
For example, you run a graphic design business, and regularly sub-contract to user interface developers and mobile app developers. In 2012, your graphic design practice grossed $240,000. You had $160,000 in expenses, leaving you with $80,000 in net profit. In 2013, you expect gross revenues to be about the same, which means you can pay yourself $80,000, about 30%* of which, or $24,000, you need to pay in federal taxes. This equates to four $6,000 quarterly estimated tax payments.
*Important: Spend the money to consult with an accountant to fine tune your estimation -- 30% is just a guide.
Pay yourself $4,667 per month while transferring an additional $2,000 per month to a tax savings account so that you can pay $6,000 in quarterly estimated taxes.
For more assistance with your money, bank accounts and investing for retirement, learn about Money Clarity, DailyWorth’s four-week eLearning program.