I am trying to be pro-active and look at how much I need to have in business expenses to off-set owing taxes. Is there a good rule of thumb?
We also own our home, have children, and student loans so we get credits that and for interest, etc. We got a return last year but my expenses were over 50% of my income. This year my expenses will be closer to 20% of my income. My husbands income is taxed at the standard rate for two children maybe even higher (I don't think we ever added our second son).
Our combined income is just under 100K / year if that helps - but not over that.
TomCopeland 02:36 PM 10-09-2013
Originally Posted by EAP:
I am trying to be pro-active and look at how much I need to have in business expenses to off-set owing taxes. Is there a good rule of thumb?
We also own our home, have children, and student loans so we get credits that and for interest, etc. We got a return last year but my expenses were over 50% of my income. This year my expenses will be closer to 20% of my income. My husbands income is taxed at the standard rate for two children maybe even higher (I don't think we ever added our second son).
Our combined income is just under 100K / year if that helps - but not over that.
You always want to deduct all of your business expenses. Doing so reduces your Social Security taxes (15.3%) and federal income taxes (25% for your family) and state income taxes (?). Therefore, for every $100 of business deductions you claim, you will save about $40 in federal taxes. If your profit is going to be higher in 2013 then you may want to have your husband withhold a little more in federal taxes to make sure you won't owe penalties for not paying in enough taxes throughout the year. You will owe approximately 20% of the gross income for your business in federal taxes.
Originally Posted by TomCopeland:
You always want to deduct all of your business expenses. Doing so reduces your Social Security taxes (15.3%) and federal income taxes (25% for your family) and state income taxes (?). Therefore, for every $100 of business deductions you claim, you will save about $40 in federal taxes. If your profit is going to be higher in 2013 then you may want to have your husband withhold a little more in federal taxes to make sure you won't owe penalties for not paying in enough taxes throughout the year. You will owe approximately 20% of the gross income for your business in federal taxes.
Just making sure I understand - so if I make 10,000 gross income, and have 2000 in business expenses, I will only get $800 savings off my federal taxes from that amount of business expenses? But will be taxed for the full 20% which leaves 1200 I would owe in federal taxes? obviously these are examples and rough numbers, but I'm just trying to at least understand how it balances. Also my state is NC and my husband said he claims 3 on his federal tax withholding and 2 on the state form.
TomCopeland 08:20 PM 10-09-2013
Originally Posted by EAP:
Just making sure I understand - so if I make 10,000 gross income, and have 2000 in business expenses, I will only get $800 savings off my federal taxes from that amount of business expenses? But will be taxed for the full 20% which leaves 1200 I would owe in federal taxes? obviously these are examples and rough numbers, but I'm just trying to at least understand how it balances. Also my state is NC and my husband said he claims 3 on his federal tax withholding and 2 on the state form.
$10,000 income - $2,000 in business expenses = $8,000 profit. You will owe Social Security taxes (15%) and federal income taxes (15-25% depending on your families income). So, you could owe $2,400 - $3,200 in taxes. If you had $3,000 in expenses, your profit would be $7,000 and you would owe $2,100 - $2,800 in taxes, a savings of $300-$400.