Daniel HonanFounder, Profitable Painter CPA PLLC · I help painting contractors increase profits & cash flow while reducing taxes♦ Bookkeeping ♦ Tax

Painting Biz Owners: How much you should save towards tax payments when you’re on your way to 500k

Name: Painting Biz Owners: How much you should save towards tax payments when you’re on your way to 500k
Uploaded: 2024-01-23T14:00:33+00:00
Duration: 53 s
Channel: Daniel Honan
Description: In this brief dialogue, Speaker B explains how tax obligations change when a business owner transitions from being an employee to a self‑employed…

23 Jan 2024 · 1 min

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In this brief dialogue, Speaker B explains how tax obligations change when a business owner transitions from being an employee to a self‑employed entrepreneur, specifically targeting painting business owners scaling toward $500,000 in annual revenue. The speaker highlights that unlike salaried employees, self‑employed individuals must cover the full Social Security and Medicare taxes themselves (self‑employment tax) and cannot rely on payroll withholding. To avoid cash‑flow surprises at tax time, a practical rule of thumb is recommended: set aside roughly 25‑30 % of net profit to cover federal income tax and self‑employment tax. The advice emphasizes proactive budgeting because the money is easy to spend and can lead to a pinch when filing returns.

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What kind of tax considerations at this level from startup to around $500,000 in revenue?
Yeah, owning your own business and being self-employed, your taxes are going to be a lot different. When you work for somebody else, your taxes are withheld every paycheck kind of automatically. Certain things like Social Security tax and Medicare costs are split between you and your employer. When you are self-employed, you are responsible to still pay those taxes, but now there's no one to share them with. And you are obligated to make those payments yourself. Kind of a rule of thumb, when you're still kind of small, you're going to want to set aside between 25 and 30% of your profit for taxes. These taxes are income taxes and what they call self-employment tax. Having the money set aside is a good thing because it's, it's very easy to spend that money and we can be pinched when it comes time to file our tax returns.