So yeah, I finally found something annoying about self-employment: paying your own taxes! I all of a sudden have a higher appreciation for all those HR departments out there — y’all make it so EASY for us!! :) And even though I knew this fateful day would eventually come, I still have to begrudgingly accept it since it means dishing out *thousands* of dollars only a couple months after cleaning up 2010’s tax mess. Bleh.
But here we are. 4 months into 2011 already (dang!) and the IRS is already looking for its dough and holding me accountable. No more sitting back and letting the “system” do it all for me. Nope – my lazy days of paying taxes are over and they want their money fast!
BUT THANK GOODNESS FOR ACCOUNTANTS!! Without this team on my side whipping a newbie into shape, I’d be in a wee bit o’ trouble right now as I don’t do details well ;) Esp. when it comes to taxes and following hundreds of pages of IRS rule. And just like they warned me 2 months ago, the time has come to put my big boy pants on and officially become a member of the small biz community. Here’s what that means:
- Instead of paying taxes just once a year like normal, I now have to pay on the following dates: April 18th, June 15th, September 15th, and Jan 17th of 2012. Not exactly every 3 months, but still 3 months worth of taxes paid.
- I have to make sure I’m BUDGETING this amount in! A whopping 35% too, which just sounds insane. This means at the end of every month, I need to xfer over a chunk of change into my newly created “tax account” (savings) and make sure I’m on it. I had originally thought I’d just do the xfer every time I received a payment, but that got REAL annoying REAL quick ;) So now I just make 1 lump “payment” into that savings account each month.
- I have an estimated “number” I have to pay each quarter. My lovely accountants (aka “the firm”) used last year’s numbers – along with some tweaks, like taking out my 9-5 salary! – and came up with my “number” I have to pay every 3 months. If anything major happens, we have to re-adjust to make sure we’re more or less paying the right amounts. Of course, any corrections will be made at the end of the year so it’s best we get close now to avoid any surprises. Particularly the bad ones ;)
Okay, so you want to know what that number is? It’s killer! The amount I have to pay now, every 3 months, is… dum dum dum dum… $5,575.00!! (ouchie momma).
It burns your hands writing those checks out too, let me tell you. Even though it’s “normal” and I used to pay every 2 weeks anyways through my employer, I can tell you that is sure doesn’t FEEL the same! :) Instead of doing my civic duty, it now feels like I’m paying for something that I never get! haha… I mean, when was the last time you dished out thousands of dollars? You got a TV or boat or car or something, right? Well not here… I prefer to go back to naive-ville where I’m oblivious to seeing those numbers on my pay stub every 2 weeks ;) Although, I will say – now I REALLY understand how much goes to the gov’t! When you physically take out your money like that, you definitely get a good picture of how every dollar gets broken down. And it’s crazy.
The one thing I have to figure out now, is how to incorporate this into my net worth updates going forward. Every month my savings accounts *technically* go up until the month I have to cut those checks. Which basically means my net worth gets artificially pumped up until it “resets” on tax month. That’s the way I’m currently doing it, and we’ll see how it looks on this next update.
What we could do instead, though, is just cut out that tax $ every month and never add it into the asset column. Which means no increases or major decreases any months going forward – just pure profit and loss. I guess kinda how it was set up before? The tax deal was already taken care since we were only playing with after-tax money anyways, right? At least when it came to cash (401k, etc is a bit different, but you get what I’m saying). So with that line of thought, I should just take it all out of the mix.
I dunno… we’ll give it some more thought and go from there. I kinda like the drama of all the ups and downs – feels more like “real” life ;) In the meantime, though, I think I’ll go find a corner somewhere and cry. You might have a cranky blogger on your hands every few months, this is gonna take some getting used to…
(Photo by karpidis)
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!