I live in California in the US. I'm now making low five figures a month via affiliate marketing and would like to know what a good % to set aside each month for taxes is. I currently set aside 10% of the gross in a high yield savings account (HSBC Direct) but I dont know if this is going to be enough. What do you guys set aside?
If you're making five figures a month, talk to an account to figure this out. Anyway, 10% of profit is definitely not even close to what you'll need - you'll probably get hit at 30-40% if I remember correctly. State & federal tax levels differ, so definitely talk with an accountant. http://www.irs.gov/formspubs/article/0,,id=150856,00.html might help, it has some basic income tax guidelines for Federal taxes. I've got no clue what California state income taxes are, though.
If you are making 5 figures a month, spend the money on a good CPA. A good tax accountant is excellent investment if you can afford it. I would also consider registering an offshore corp for tax purposes. But, seriously, talk to an accountant.
Typically you are looking at a ball park of 33%. If you put aside 35% monthly then you will be fine unless you are in some crazy situation that warrants otherwise.
If you live of that low five figures than 10% should be enough. But if you have another job and you're in a higher tax bracket I'd look into creating an offshore corporation for your affiliate earnings.
Interesting idea. Any idea how this can be done? Create the off shore company, have the offshore company pay me a certain amount? Pay taxes on that or what? I'd defiantly like to hear more about that. I will also start putting aside more. Thanks for the tips.
If you're pulling in 5 figures a month, there's no way you'll be able to write off so much that you only pay 10%. If you try, you'll be audited pretty quickly (trust me). As for an off shore company, that's not going to fly either. It's tax evasion & it's illegal. Tax audits aren't pretty, and you'll lose a lot of money (and possibly spend a while in jail). Don't try it. http://www.irs.gov/businesses/small/article/0,,id=106568,00.html
You arent allowed to evade taxes but you are allowed to pay as little taxes as you possibley can as long as its legal. Do you honestly think anyone who falls in the 32% tax bracket pays 32% of their money, No, they follow the letter of the law so they end up maybe paying 0-3%. An offshore corporation is legal as long as you set it up and bring money back to the US correctly. Of course the easiest thing to do is be a canadian citizen who lives most of the time in the US.
You should probably save more then 10% but it also depends what you're going to write off on your taxes. If you're self-employed then you can write off tons of crap. Your office or if you're doing it from home then calculate the square root of the space that is your work place and work that into your rent payment. Write off your electric bill, internet bill for the whole year, office supplies, start saving receipts. Any trip you make save the hotel and airplane receipts and write that off as business trips..lol. I made $110,000 last year...paid $14,000 in taxes. I should of paid like $21,000 but i wrote off everything i could think of on my taxes.
Set aside just the correct amount that you think you are going to have to pay. For example, if you think you are going to make a certain amount for the tax year and the tax will be 30% of your profits, then put aside 30%.
Can someone explain the offshore company formation thing a little better? I feel like that's something I'd want to talk to an attorney about before I got started.
If you wanted advice you would be better to speak to an accountant rather than an attorney. A good accountant will be be able to explain what you can/can't do in your country. Of course some people use offshore setups to illegally pay zero tax, and we wouldn't recommend this. But used properly they can save some people a lot of tax perfectly legally. A lot of people also use them to avoid the burden of paperwork, offshore companies are not required to file tax returns etc.
I pay about 13% in taxes. Ive been audited 2x though, and always get off clean. We right off alot of stuff. Have a few dif s-corps and other such things.
I would suggest about 30 percent to play it safe. Make sure you keep records of any costs that are related to your website. Even if your business didn't turn a profit for the year (or you for that matter) you'd still have to at least pay social security on your gross income. Do you have your business registered as an LLC with it's own tax ID, or do you just use your social for now? Any experienced CPA will tell you that you can be fairly generious with this. For example any website development costs, or hosting costs (obvious) but also your ISP (if primarily used for work, if not pro-rate it), phone bills if you need to call partners/clients/whatever, as well as gas if applicable). Just make sure if you mix personal stuff with business stuff you divide or prorate it fairly.
after putting money in IRA, expenses, paying kids to do some home chores (up to $3000 tax free for each kid), deduction for home office and food expense for business, donations etc..etc..etc... I paid like $700 last year ... on a very good adsense and affliate income make sure you got all receipts for all expenses .... and write on back of those receipts what they were for get an expensive CPA and it's gonna be worth it, better than paying $20k taxes using an H&R cpa (they are crappy)
Wow a TON of great advise. Thanks everyone. I'll be looking into some good options. This month looks like I'll be hitting close to $20k+ ($600-$750 / days) so I really need to talk to an accountant. Also, I know church donations count towards taxes but not much. I pay about 20% net profit to tithes and offerings... So I'm hoping this helps. I think with all the donations + saving about 20% profit for tax + write offs, I should be fine till I can talk to an accountant next month. Thanks for the link Vic_mackey, I'm reading up on it now.
spend mony on a good CPA but hold back 35% for taxes and you will be good in general but ultimately consult a CPA and they may be able to tell you ways to do things with your money LEGALLY that will help with taxes. BTW i notice u are not setup as a company... unfortunately Due to that you may be subject to self employment taxes... should REALLY consult with a CPA as that is additonal 8% off the top. (setup a business if oyu are doing more than 10K a month TONSSSSSS of advantages)