Every nurse practitioner entrepreneur needs to ensure they properly plan for TAXES in their business or if they are a 1099 contractor. Remember, taxes are the BIGGEST expense in your life, therefore you need to ensure that you do everything you can do LOWER that biggest expense. It is foolish not to. So first off, learn how to lower your legal tax obligations.
With that said, it is important to estimate what your tax bill will be for the year if you operate a business or are a 1099 contractor. The difference between taxes as a business owner is much different than being employed. When you are employed, your employer just has the taxes taken out of your paycheck and you really don’t have to think about it. When you are a business owner or a 1099 contractor though, YOU are responsible for paying your taxes either on a quarterly or annual basis.
So, is it quarterly or annually? The general rules for having to pay quarterly vs annual taxes are:
- Do you expect your federal income tax withholding (from the salary you pay yourself through your business) amount to at least 90% of the total tax that you had to pay last year? If so, then you don’t need to pay quarterly taxes.
- Do you expect that your federal income tax withholding (from the salary you are paying yourself) will be at least 100% of the total tax that you paid last year? OR, if your adjusted gross income is over $150,000, then do you expect that your income tax withholding will be at least 110% of the total tax from last year? If either of the above apply, then you don’t need to pay quarterly taxes.
I fall under 2 as I make more than $150,000 a year. Therefore, I don’t need to pay quarterly taxes as my income tax withholdings from the salary I pay myself through my business meet the above requirements. Sound confusing? Because it is, SO FIND A GOOD ACCOUNTANT THAT UNDERSTANDS SMALL BUSINESS! But I digress…
Regardless of having to pay your tax obligations quarterly or yearly, the general rule of thumb is saving 30% of your profits for your tax obligations. In reality, if you are utilizing legal tax lowering strategies, you should be able to get your tax bill down to less than 20%, but to be on the safe side, save 30% so you are not stressing about your tax bill when the time comes!
This is really simple to do:
Revenue comes into your business account, and you pay business expenses.
Profit is then distributed to either your parent company or a separate account under your business or you just pay yourself.
30% of that profit is then distributed to a separate bank account under your business for taxes. YOU NEVER TOUCH THIS MONEY! Some people argue you should invest this in the market, but I think that is risky. Never gamble with your tax obligations.
That is it! Summary: Talk to your CPA to determine if you need to pay quarterly or annual taxes and save 30% of your profits for your tax obligations. Piece of cake!
Here is a calculator to estimate your tax withholdings/obligations just FYI.