Thursday, September 12, 2013

Something's Gotta Give

Quarterly Tax Payments or a Living Wage

Wrapping your self-employed head around this one can be super-perplexing, to say the least. 

You get paid this X-amount per month. It's seldom enough to cover your monthly nut and even worse at the end of the year you have to scramble to cover the huge sum in Self-employment taxes. Paradoxically, this is all good information- crucial numbers to help make vital decisions.

One method to help alleviate the Year-End tax burden challenge for independent contractors is to take a flat % off the top, each & every payment received. 20-30% (*Consult your local CPA) off the top. This is technically not income & you shouldn't even consider spending it. 

Now if you do the math and subtract out the % for taxes then you now know your real number of income to work with. This is valuable information that can be leveraged in make or break decisions such as: 

1) Hey there big spender? You may need to cut back the discretionary spending to fall in line with your actual earning level. 
2) Need more billable hours? You may need to get out there and find more clients or transition away towards less price sensitive (cheap) clients.
3) Time for a Raise? To make a living wage you may need increase your hourly rate. 

Any of a number of options to get out of the way of the 20-foot April 15th tidal wave coming to crush your sunny day at the beach attitude. With this info you can make informed decisions. Better to base your self in reality rather than false hope, denial or vagueness. Vagueness inevitably bites back.

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