How much do I owe for taxes from side business?

Question

I currently make around $50K but I live in the San Francisco Bay Area, so that isn't that much due to the high cost of living. I love painting and have decided to start a side business selling my work.

I plan on making between $5k - $20K this year from the business. How much am I going to have to pay in taxes on this additional income? I am not married. From the research I have done, is this info accurate?

Federal Tax = 25%
California State = 9.3%
Self Imployment Tax = 15.3%
Sales Tax = 8.25%

Total = 57.85% (not including insurance for business, extra licensing, permits to sell work, and the ton of other business expenses)

This is starting to scare me and I am wondering how anyone can ever make a profit? Please help...maybe I won't go into business, it isn't worth my time to only pocket 10% - 20% profit. I don't want to be making less than minimum wage with the skills I have!

Answer 1

There's no need to get a DBA. All taxes can be paid through your Taxpayer Identification Number (Social Security Number). You would fall into the 25% Federal Tax bracket. You should fill out schedule C. This should be put on Line 12 of your 1040. You'll also need to fill out schedule SE at the 15.3 % tax rate, which goes on Line 58 of your 1040. You also get to claim a 50% deduction of the amount claimed on Line 58 on Line 27. Take a look at the form and instructions. It would be a good idea to fill out the 1040-ES to make quarterly estimated payments to the Federal government. It'll save you a big hit come April 15.
You will need to file forms with CA to get yourself set up to remit sales tax to the state. Remember though, break it out seperately on the invoice, so the seller is paying it to you, and you're remitting it to the state. e.g. If you sell a piece for $1,082.50, put the selling price at $1,000.00 and tax of 82.50. If you kept it at the $1,082.50 total price, then you'd end up paying 89.31 in sales tax. You would get to claim a deduction though for that sales tax on your 1040.
I can't give you any advice on the California State Income Tax. I file corporate returns in CA, which is a book itself. I don't imagine the 540 is any better.

Answer 2

If your going to do it legal you need to get a DBA and then you need to file quarterly statements as to how much you made and pay taxes quarterly, In order to do that you need to keep all kinds of records, What you pay for overhead, How much money was spent in order to run your business, and how much money you were paid for each job, and charge a tax accordingly A tax sheet is generally issued with your DBA
And it is important that you file these all properly so you might want to check out how to run Business. Because at the end of the year you have to file taxes for the money you paid yourself and this generally needs an accountant and they like your files to be in order.

Answer 3

your about 10-15% off. you dont pay sales tax you collect it. and both cali and the feds dont tax everything at your op rate. only the amount over the limit. your first $7,000 is basically free. then some of it is taxed at the next rate. you will prob pay in the low-mid 40s

Answer 4

You would probably benefit from speaking with a tax attorney or accountant. There's actually a membership available to small businesses and the self-employed that costs around $2.50/day and gives you unlimited access to all the advice you need from a top law firm and a wide range of business consultants. You can find out more at http://www.prepaidlegal.com/biz/seanproske

Answer 5

When you swim with crooks you just might get caught in the net intended for them. Your BF was happy being a crook until he got caught. Pay the tax and stop being a crook or the tax man will always be after you.

Answer 6

You'll collect the sales tax from buyers, and just send to the state the money you collect, so that doesn't come out of your pocket. Other than that, you're pretty accurate,.