Americans: How much do you owe are how much are you getting back for taxes withheld in 2007 (in calendar year 2008)?
I keep my books very straight and it's just myself (self-employed), so I'm done once I cut my final W-2s in January. As usual, I'm getting a 5 figure (over $10,000) tax return. It's always a nice bonus for the spring, especially after my first quarter of the year.
I typically withhold too much in the first quarter of the year, which means -- with Net30s -- I actually make no money until April. I.e., with withholdings (probably inflated for safety) plus early expenses (even the AmEx Business is still due in full every month) offset the Net30 billables (first billed Jan 31st, not due until March 1st or 2nd, so I'm 1-2 months behind) I have received by April 15th (first withholding due). So I had better have "saved up" from the last quarter of the previous year, and that's what I treat Q1 like -- "break even." The second and third quarters are more normal, and I don't withhold as much over. By the fourth quarter, I don't bother, as I usually have an idea of where I'm at with my books before I hand off to my accountant. Each and every time, I've withheld too much. It's also a "nice buffer" for those Net30s I just have to "write off" (because they won't be paid).
Some people look at my billable rate and criticize me. But they don't realize that after expenses (and I'm not writing off my car or other things, but it's not cheap to fly and stay in the NYC area), taxes including the self-employment tax (the portion of social security your employer would normally pay), various liability insurance in addition to medical and other things, what I actually bring home is less than 30% of what I bill. I.e., if I bill $200,000, what I actually bring home in the end is more towards $50,000. So it's always a misnomer when people look at how much I bill, because what I "gross" is almost half that, before we start looking at non-deductible expenses (of which I'm extremely anal and side on caution, and my accountant knows it at times) let alone taxes, which brings me down to that total net.
I got fed up years ago in working for other people, and only attempted twice since getting downsized in 2001. I had no money, quite a bit of revolving debt with a very recent hit against my credit (through no fault of my own either), but I went into business for myself anyway. If you're a minority or a woman, most states will help you get loans -- including some of the companies that subcontracted myself early on (and one woman in my state even said I should have started my business under my wife's name, she was really good to me) -- so that's really no excuse if you don't like your job either. I highly recommend self-employment because it gives you far more control of our destiny. It just requires a lot of risk taking but the reward of independence is well worth it.
I'm now concluding 6 years with my current endeavor, which means I've broke the 80% rule at 5 years, which is even a worse rate than the 7 year divorce rule. I also started in 2002 which was a really bad year. I guess that's reason to celebrate this tax year, especially since all of my first 3 years didn't total what I made in each of these last 3.
I keep my books very straight and it's just myself (self-employed), so I'm done once I cut my final W-2s in January. As usual, I'm getting a 5 figure (over $10,000) tax return. It's always a nice bonus for the spring, especially after my first quarter of the year.
I typically withhold too much in the first quarter of the year, which means -- with Net30s -- I actually make no money until April. I.e., with withholdings (probably inflated for safety) plus early expenses (even the AmEx Business is still due in full every month) offset the Net30 billables (first billed Jan 31st, not due until March 1st or 2nd, so I'm 1-2 months behind) I have received by April 15th (first withholding due). So I had better have "saved up" from the last quarter of the previous year, and that's what I treat Q1 like -- "break even." The second and third quarters are more normal, and I don't withhold as much over. By the fourth quarter, I don't bother, as I usually have an idea of where I'm at with my books before I hand off to my accountant. Each and every time, I've withheld too much. It's also a "nice buffer" for those Net30s I just have to "write off" (because they won't be paid).
Some people look at my billable rate and criticize me. But they don't realize that after expenses (and I'm not writing off my car or other things, but it's not cheap to fly and stay in the NYC area), taxes including the self-employment tax (the portion of social security your employer would normally pay), various liability insurance in addition to medical and other things, what I actually bring home is less than 30% of what I bill. I.e., if I bill $200,000, what I actually bring home in the end is more towards $50,000. So it's always a misnomer when people look at how much I bill, because what I "gross" is almost half that, before we start looking at non-deductible expenses (of which I'm extremely anal and side on caution, and my accountant knows it at times) let alone taxes, which brings me down to that total net.
I got fed up years ago in working for other people, and only attempted twice since getting downsized in 2001. I had no money, quite a bit of revolving debt with a very recent hit against my credit (through no fault of my own either), but I went into business for myself anyway. If you're a minority or a woman, most states will help you get loans -- including some of the companies that subcontracted myself early on (and one woman in my state even said I should have started my business under my wife's name, she was really good to me) -- so that's really no excuse if you don't like your job either. I highly recommend self-employment because it gives you far more control of our destiny. It just requires a lot of risk taking but the reward of independence is well worth it.
I'm now concluding 6 years with my current endeavor, which means I've broke the 80% rule at 5 years, which is even a worse rate than the 7 year divorce rule. I also started in 2002 which was a really bad year. I guess that's reason to celebrate this tax year, especially since all of my first 3 years didn't total what I made in each of these last 3.
