Let me first say I’m in a particularly good situation at the moment, but would certainly like some good advice in concern to taxes. I left my former employer for a new company designing completely unrelated products (namely furniture.) But during my time at my old company, I got really good at designing a certain product, and now they are paying me per project to essentially do exactly the same thing I was doing. That part of the job was great, so it’s wonderful that I still have the opportunity to design such inspiring and exciting products (much better than furniture IMO.) The money is starting to get ridiculous, in a good way.
How much should I set aside for taxes? 20%, 30%?
If I were to buy new computer equipment, can that be deducted?
When should I look into have my own LLC for consultant work?
1 - 30% will be a safe number…no worries about penalties from the gov’t (you should be paying estimated taxes quarterly though, if it’s a significant amount)
2 - YES - you’ll want to talk to an accountant about your options…
3 - I think a general rule is that if you’re making at least 20K or so, you should incorporate. This will be a high enough amount that you’ll be able to pay an accountant, file the corporate tax stuff, and still save some cash on tax breaks…
4 - No matter what you decide about the above, you should definitely talk to a professional…and if you’re just doing the work on the side you may be better off with someone who charges by the hour rather than a flat fee. But look into both options, you should be able to see what the benefits and drawbacks are…
Thanks for the advice, Nate. Appreciate it. After realizing that I will need 30% held for taxes, I think I need to raise my rates!! I’ve been charging per project because I know, on average, how long it will take to complete. Sometimes it works in my favor and sometimes not. With how much work I’m receiving from them, I’m almost bringing in an extra $25K, so I definately need to speak to a financial advisor.
At some point, though, I need to figure out how much I can handle. Working this much, while exciting, is going to start wearing thin after a while. At the same time, opportunites like this don’t pop up that awful often, so might as well take advantage of it while I can!
Wonder how much stuff I can claim on my taxes as exemptions?
Go to the irs website and look for forms f1040sc and i1040sc. Those are the forms and instructions for schedule c, profit and loss from business. On the form you’ll see sections where you can deduct stuff like legal and pro fees, office expense, repair + maintanence, etc. Also if you’re doing work from home check out form 8829.
Make sure you read the instructions because there are rules about how you can claim things like only the percentage of your home that is strictly used for your business can be claimed, regular land llne phones can’t unless an extra line that wsa strictly for your business, etc.
All of the info is on the irs website, look under the small business section and you’ll see all the forms you’ll need. I know there are some lines on the forms they don’t explain, if you can afford to talk to a pro, I’m sure there are other deductions a pro will know about that the irs doesn’t make it easy for you to find out on your own filling out the forms. Good luck, glad to hear things are going well for you.