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Embarrassing but honest: Pay your taxes on time (quarterly), assuming you are US based and on a 1099. Put that money away as soon as possible with ea. payment

Embarrassing but honest: Pay your taxes on time (quarterly), assuming you are US based and on a 1099. Put that money away as soon as possible with ea. payment - just like an employer were withholding it. I managed my finances poorly, and it gets increasingly difficult to catch up. All good now but was the most expensive lesson I learned. Edit: seeing other replies here, I would meet with a tax/financial person from the start.

cm2012 7y ago
Yeah I ended up owing 95k in taxes last year oops. Luckily I can do a payment plan now. If I had gotten unlucky and started earning less I'd be bankrupt.
mehrdadn 7y ago
How do you know how much money to put away until you're at then end of the tax period and know the total tax amount? Do you just estimate based on what you expect to earn?
- dfsegoat 7y ago
  https://www.irs.gov/publications/p17#d0e106605 https://www.irs.gov/publications/p17#d0e106605 But I would also find a good accountant in advance.
- WildGreenLeave 7y ago
  I'm from The Netherlands where taxes are probably a bit different, but for every invoice I send I take of the amount of VAT (21%) and put that to the side. After that I split the amount I have left in 2, so 50% goes to a savings account to pay income tax, and the other 50% is what I can spend/have left. The 21% will always be less, because you also have to pay for other things that include tax. So that (should) never be higher. In the end you've put more aside then you have to pay so that's a nice bonus. With regards to the income tax, in The Netherlands you pay +/- 37.1% till 68.507eu, after that you pay 49,50% for everything that is above the 68k. So if I put away 50% for every euro I earned I'm sure that at the end of the year I've got a nice bonus and don't have to pay more then I put aside. (For other dutch people, I'm using the new tax brackets that start in 2020.)
- ScottFree 7y ago
  > Do you just estimate based on what you expect to earn? I echo the advice to get a good accountant, but "estimating" is what I've been doing for the past 5 years. I had an unexpectedly good year a few years ago and wound up underpaying on my quarterly taxes. The IRS and the State of NY both charged me a small fine and I just sucked it up and paid it. It's quite a racket they've got going on considering income tax was supposed to be a temporary measure to get us through WWI.
  - mehrdadn 7y ago
    Interesting, do you have a link to more reading on this? The Wikipedia page on the 16th amendment doesn't seem to mention WWI as the reason.
cunac 7y ago
What I did in the past is to use the highest marginal tax rate for both corp tax and personal tax and leave that aside as our Dutch friend said it is actually a nice bonus at the end so you feel 2x better

cm2012 7y ago

Yeah I ended up owing 95k in taxes last year oops. Luckily I can do a payment plan now. If I had gotten unlucky and started earning less I'd be bankrupt.

mehrdadn 7y ago

How do you know how much money to put away until you're at then end of the tax period and know the total tax amount? Do you just estimate based on what you expect to earn?

dfsegoat 7y ago
https://www.irs.gov/publications/p17#d0e106605 https://www.irs.gov/publications/p17#d0e106605 But I would also find a good accountant in advance.
WildGreenLeave 7y ago
I'm from The Netherlands where taxes are probably a bit different, but for every invoice I send I take of the amount of VAT (21%) and put that to the side. After that I split the amount I have left in 2, so 50% goes to a savings account to pay income tax, and the other 50% is what I can spend/have left. The 21% will always be less, because you also have to pay for other things that include tax. So that (should) never be higher. In the end you've put more aside then you have to pay so that's a nice bonus. With regards to the income tax, in The Netherlands you pay +/- 37.1% till 68.507eu, after that you pay 49,50% for everything that is above the 68k. So if I put away 50% for every euro I earned I'm sure that at the end of the year I've got a nice bonus and don't have to pay more then I put aside. (For other dutch people, I'm using the new tax brackets that start in 2020.)
ScottFree 7y ago
> Do you just estimate based on what you expect to earn? I echo the advice to get a good accountant, but "estimating" is what I've been doing for the past 5 years. I had an unexpectedly good year a few years ago and wound up underpaying on my quarterly taxes. The IRS and the State of NY both charged me a small fine and I just sucked it up and paid it. It's quite a racket they've got going on considering income tax was supposed to be a temporary measure to get us through WWI.
- mehrdadn 7y ago
  Interesting, do you have a link to more reading on this? The Wikipedia page on the 16th amendment doesn't seem to mention WWI as the reason.

cunac 7y ago

What I did in the past is to use the highest marginal tax rate for both corp tax and personal tax and leave that aside as our Dutch friend said it is actually a nice bonus at the end so you feel 2x better