One of the biggest transitions going from a employee to self employment is the tax issue. As a paid worker, taxes are a no brainer. Every paycheck they are automatically taken out and sometimes you even get a refund at the end of the year. What could be easier right?
It’s a huge mental transition going from that, to having to pay large sums of your hard earned profits to the government. You have to have the discipline to set aside money from your profits to pay your taxes. Usually, estimated taxes are paid 4 times or less per year. My accountant usually calls me and lets me know its time to bring in a check. Its always a depressing call, but you don’t really have a choice.
So how much should you set aside for taxes? A good rule of thumb is 30% of your net profits. That is a safe figure regardless of your tax status like sole proprietor, LLC, S-corp, etc. I recommend putting that money in a separate “tax” savings account. That way you never really feel a sense of ownership to that money, and therefore its easier to part with. For example, if you do $10k in profits, $3k goes right into the tax account. Something like an HSBC savings account works great. At least you are earning decent interest on the money before you pay it. You never want to be caught in the situation where taxes are due and you don’t have the money because you spent it. Pay profits into your tax account first.
haha
15% on corp. taxes here in BC, Canada
But personal income is also taxed then too, right?
I sure wasn’t disciplined enough when I first started making money online. It’s just so easy to spend the money! Besides, you’re going to make more next month, right? Wrong!
I owed money to the IRS for 3 years in a row! I’ve finally caught up and paid my balances off.
This year I’m on track. I’ve been saving 35% of each month’s net profits into a my business checking account, so I shouldn’t have any problems.
I thought it was 17% here in British Columbia, when did it go down 2% to the 15% tax bracket? Yeah we have less corporate taxes than U.S. corporations for sure.
Great article…
Thanks for the tip… I find this number to be a great approximation too.
~Jony
I forgot about taxes lol! Now I have to look at my earnings as if I only pocketing 2/3 of what Im actually earning, which is a bummer. But as everyone knows there all sorts of “loopholes” to get around 30% taxes, to more like 10 or 15%.
Great post! Isn’t corporate taxes around 15% in Ontario?
I’m the process of getting a corporation registered. One of my high school friends, who is an accountant is helping set up everything. He says to pay your business taxes every 3 months. I like your idea of setting up a separate saving account for taxes. Same way setting up a separate account for your profits.
With my day job, my personal income (apart from my business income) will go over 100k this year, putting me in high tax bracket. I have some how figure this out.
Chad, any suggestions on corporate entity’s? I’m trying to find a decent accountant to make the switch from sole proprietor by this coming net-15 payment so I can start the tax savings immediately. Just not exactly sure which model is best for a single affiliate marketer in Florida.
I came across your site on Google while I was searching for information of “affiliate marketing taxes in Ontario”. I am an affiliate marketer and was told my by accountant that I would have to pay a GST on all my affiliate sales. I just wanted to confirm if any of you know about taxes for affiliate marketer in Ontario. Is it based on sales or profits ? and how much is the percentage …I mean do I have to pay GST as wll as tax on my income earned….Would apprciate your help on this…