My last update on Sept 8 2016 (Saving taxes through payroll) briefly touched on the timing differences between estimated quarterly taxes and withholding through payroll. This week I will extend and elaborate upon the concept of estimated taxes, in particular how higher income taxpayers can ballpark their 2016 taxes and avoid underpayment penalties and interest. ----- IRS Publication 505 provides guidance for taxpayers regarding estimated taxes and withholding. The following e

Last week I explained how self-employment taxes and payroll taxes are two sides of the same coin. This week, I will illustrate how a self-employed individual can benefit from being on payroll. ----- Let's take a closer look at how payroll can reduce excessive taxation: 1. Assuming no other data, $100,000 of business income for a self-employed individual (filing single in 2015) will result in $30,580 of tax. 2. Of this $30,580 in taxes, nearly half ($14,130) is in the form of

W-2 employees don't pay self-employment taxes. Or do they? ----- As an employee, 6.2% of every dollar earned is withheld for Social Security, and an additional 1.45% is withheld for Medicare. The employer pays the same amount, so that the total amount of Social Security and Medicare taxes withheld is: = (6.2% + 1.45%) + (6.2% + 1.45%) = 15.3% Therefore, on $100,000 of W-2 wages paid by an employer to an employee, $15,300 is paid to the IRS in the form of payroll taxes. [$100,