Approx how much should I set aside for TAXES if it is not coming out of my pay?

Question

I will be making approx 90K a year. My dilemma is that I would like to know approx how much taxes I will be expected to pay (both federal and state). I live in MA where there is a 5% income tax. I have the maximum allowable deduction for school loan interest ($2500), and I will be filing jointly with my husband. I will be paying my own (and my husbands health insurance) approx $8500 a year for both of us. My work related expensive are about $4000 a year. My husband usually owes about 11K on his own of taxes after deductions (he is a partner in an LLC) a. We have no dependants. And cannot claim our mortgage interest/payment (another story!). I have some other small deductions but nothing too significant. What @ will I owe. I found an online irs fed tax calculator and added that number to my 5% state tax and got approx 9000+4500=13500. I feel like this is way to low and that I must be doing something wrong since my husband isn't paying much less making 45K. Help!

PS I am a contractor which is why this pay isn't taken out by my employer. As for the mortgage issue we legally do not own our condo. Our parents "bought" the place because we don't have enough earning history (since I am just out of school). We pay the mortgage, but they are paying the taxes and taking the deductions for it until we get enough credit history to officially take over the mortgage at a decent rate

Answer 1

My question for you is:

If you don't have withholding from your paycheck, what kind of "job" do you have? No one makes 90K under the table, so I suspect you're self-employed.

If you are, you have to pay self-employment taxes above and beyond your income tax (15.3% of net business income). Along with this you will get about half of that in an income adjustment to reduce your taxable income.

Here's a tax formula you can follow:

Total income from all sources
Minus adjustments:
...employment expenses
...adjustment for self-employment tax
...student loan interest
...self-employed health insurance
...any other adjustments (bottom front of 1040)
Result is your AGI

AGI
Minus standard deduction for a married couple ($10,300)
Minus exemptions for you, hubby, and other dependants ($3,300 each)
Result is taxable income

Taxable income * 25%
Result is how much you owe

How much you owe
minus any credit you qualify for on the reverse top of 1040
minus anything you paid in during the year
plus self employment tax

Result is how much you have to pay

All you have to do is make sure that the amount you have to pay, plus perhaps a small amount for error, is deposited with your bank for taxes by January 15.

Also, I made an assumption that you'll be in the 25% tax bracket. If your taxable income will be between $74,200 and $154,800, you'll be in the 28% bracket. (Your tax will actually be a little lower than this because I didn't take the time to figure in the progressive lower brackets.)

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I find it hard to believe that you can't deduct your mortgage interest and property taxes.

If you're paying for a loan on your home, you get the deduction. Who told you that you can't have it? The only way you can really lose something like this is in a divorce settlement, and I've never seen a person get a deduction for something they don't pay for.

Answer 2

You are correct that it's way too low. First of all, sounds like you aren't taking into account the self-employment tax, which will end up being around $12,000. Your federal income tax is a whole lot more than $9000 - probably at least 2, maybe 3 times that - even if you were single it would be a lot more than $9000.

Somewhere you had a misunderstanding in the calculator you were using. And since you're married, you need to take both incomes into consideration.

Under your circumstances, I'd figure you might have to set aside close to half. You could buy turbotax software and run your husband's income alone, then your joint income, through it, to see how much total you'd owe between you, and how much extra your $90K would add to your joint tax liability.

Depending on your joint tax bracket, you'll very possibly owe around 25% for federal income tax, the 5% for state, plus around 14% for self-employment tax (it's 15.3%, but not on quite all of the income, then you get to take an adjustment to income for half of it so that cuts your tax down a little).

You will need to make quarterly estimated payments to avoid penalties when you file for underwithholding.

Answer 3

Try form 1040-ES. Make sure to include the self-employment tax (15.3% of 92.35% of income as an independent contractor). This should give you the correct federal number. Then add the state amount. Also, make sure to pay on the specified dates. There is a big penalty if you wait until you file.

Answer 4

approx 60%

Just out of school and making $90000.00 per year ?