I make $141,000 a year from an employer. This year I anticipate making $30,000 from side consulting. I have heard to save out 25% of the consulting earnings to cover the additional taxes. Is this correct?

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Originally Posted by stevenstj1

I make $141,000 a year from an employer. This year I anticipate making $30,000 from side consulting. I have heard to save out 25% of the consulting earnings to cover the additional taxes. Is this correct?

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25% may be a little low, but it's impossible to say what the right amount is without more details. You are in the 28% income tax bracket for federal purposes, and you must also pay self-employment tax of 13.3% on that $30K. (FYI, the self enployment rate is currently scheduled to rise to 15.3 % on January 1 2013). So that's over 40% total. And don't forget that depending on where you live you may have state/local taxes to pay as well. The good news is that you can claim deductions of your business expenses to offset some of these taxes. As a consultant you may have deductible expenses such as computer and equpment costs, telephone, office supplies, and travel costs, to name a few. You should try to estimate what those expenses are in order to figure out how much of the $30K you will actually net as income, then apply 28% income tax + 13.3% self employment + state/local taxes to that amount.