Heidi Tyler wrote:
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Heidi:
On estimated taxes - that's a tricky situation, you end up doing four
mini-tax returns during the year if you want to peg the payments
exactly. Good job for the accountant to do. Just keep informed about
what method he's using...is he telling you the estimated tax payments
that are expected to match your actual taxes, or is he telling you the
minimum payments required to avoid penalties? These are two different
numbers and one can leave you owing money in April. Which is fine, you
just need to set aside enough to cover that. The important thing with ES
payments is to avoid penalties (and really, even those aren't so bad at
current rates).

Also: keep in mind that self-employment taxes are a significant part of
the tax bite when you work for yourself. That will be part of your
estimated tax payments but it's surprisingly high. Though they drop off
at a certain point it's an additional 15.3%, starting at the first
dollar of income, and these are on top of the normal federal & state
income taxes.


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Of course, first step is seeing what you might owe in April.

If retirement savings are of interest, ask your accountant about a
SEP-IRA. You can open one all sorts of places (brokerage firms, mutual
fund companies like Vanguard) and deposit before-tax money from
self-employment. You get a tax deduction for the amount of the
contribution. The contribution limits are high, essentially 20% of your
net income from self-employment.

There are some other alternatives but with just a couple days left in
the year a SEP might be preferable - deadline for establishing and
funding it is late - the deadline for your 2004 tax return (including
extensions).


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If the income really will be variable each quarter you might have the
accountant estimate your total (actual) taxes each quarter. It'll cost
you more to do it that way but at least you'll be able to set a budget
for spending & saving. In that situaiton to avoid penalties for
underpaying taxes you'd probably need to file an extra form, the
"Annualized Income Installment Method", which is one of the uglier ones
out there, and a great reason to hire an accountant.

-Tad

My husband started working for himself this past February. We get paid
quarterly and pay taxes quarterly. His income varies quarter to quarter.
We have an accountant for taxes and are hoping that works out for us.

My question is this - if we have money left what is the best way to invest
that. We have retirement accounts which are just starting to bounce back.
We also have some stocks and regular saving accounts and CD's. All this is
from before he started working for himself.

Say we have $ 10,000 to 20,000 to invest, what is a good plan for that?

Also because we get paid quarterly right now I leave that in the savings
account and just withdrawal a salary every other week. Then at the end of
the quarter we pay the estimated tax. Some quarters we have quite a bit of
money left but I don't touch it because I'm afraid we'll come up short with
taxes for the year. Is there a better way to do this?