Hi, I am wanting to start a residential and commercial cleaning business as a sole proprietorship. Is there a safe percentage that I can deduct from what the client pays me so that I will have all of the money put aside that I need at the end of year to pay it forward to the IRS?

Also, I have another question. How would I file at the end of the year? I filed a 1040 EZ last year. This year I would be starting a sole proprietorship. Would I file a 1040 EZ and something else for the business?


Thank you!

First, understand that you pay taxes on your NET PROFITS, not your gross income.

Hence, you need to determine what your net profits will be by deducting ALL of your expenses from your gross income.

Once your determine that, you will pay 15.3% in self-employment tax.

Then you need to determine your STATE income tax liability and FEDERAL income tax liability.

State tax rates range from ZERO to about 14%.

Federal tax rates start at 10%, then 15%, then 25%, then 28%, then 31%, then 35% and finally 39.6%.

You might find the worksheets in the instructions for Form 1040-ES helpful in doing these calculations.

Off-hand, the SAFE PERCENTAGE you asked for would be 33%, which means you put aside 33% of your net income. That should be enough to cover most, if not all, of your tax liability for 2014.

For 2015, you will need to pay quarterly estimated taxes for both the federal and state taxes you will owe.