Question by Stark: How do you calculate how much income to withhold for taxes when starting up a small business?
We just started up a small business and are wondering how we calculate how much money to withhold for income tax, (federal, state, social security). Is the IRS withholding calculator a good tool to use? Also do we just all personally put out tax money aside and pay it at the end of the year or does the business have to withhold that money and pay it for us? If so how often? Thanks for all your help!
Answer by Hank Roitman, EA
There are a lot of if’s in your question:
Who are “We”? you and spouse or a partner?
Form of business: Sole proprietor. partnership, Corp?
Is this full-time or a part-time venture while you maintain a full time job?
If you are a sole prop. or partnership, withholding does not apply because you are self-employed, ie NOT employees and therefore not subject to withholding. You (not the biz) pay as you go via “estimated tax payments”
If you have incorporated, you probably pay yourself a salary (unless you are not profitable) in which case that is senseless. If you do, then withholding applies.
Now to your question: How much tax you will owe is a function of the amount and types of income in 2009. Without that there is no way to give you any idea of an amount to save or send to the gov’t.
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