Hi,

I started looking more on what I would keep if I price my products at sertain price and looks like you have to really think about taxes you are going to pay on your income.
If you are solo you are responsible for SE tax which is 15.3% + you have to pay federal income tax which is ~30%. Looks like the total amount of taxes is 45.3%. So, if I want to keep $1000 from selling some product I would need to price it at
$1000/(100%-45.3%) = $1828 + production cost.
Am I right?

********Federal 1040-REALLY EZ form********

1. How much money did you make last year?_____________
2. How much did you spend on rent/mortgage & Car Payment & Basic food?__________
3. Subract Line 2 from Line 1____________

Remit the amout on Line 3.

EDIT: Sorry! I couldnt resist.

Big numbers make my little brain hurt. I sent the question over to my business guru. If he wakes up and replies, I'll add his answer.

I'm no CPA, so I'll let someone else answer for sure.

Here's a fun little business calculator to help figure out what you need to charge based on all expenses, certainly something to think about and something that most people starting out don't consider.

http://www.nppa.org/professional_developme...cdb/cdbcalc.cfm

We go have them done...we have an amazing guy. You will do much better by having someone else do them for you.

Yes, you're just about right. Normally when you work a "real" job and get a paycheck it's broken out like this:

Employer pays:
6.2% of your income for Social Security.
1.45% of your income for Medicare
Federal unemployment tax (varies according to state, usually 1% or less)

You pay (usually via paycheck deductions):
6.2% of your income for Social Security (you pay 1/2, the employer pays 1/2)
1.45% of your income for Medicare
Whatever your Federal income tax withholding rate is, between 23% and 38%

When you are self employed, that means you are the employer - so you have to pay both what the employer pays as well as what you as the individual would regularly pay. So the full tax burden to you is:
12.4% of your income to Social Security
2.9% of your income to Medicare
(these two together are referred to as "Self Employment Tax" a lot of the time)
and whatever your Federal income tax is.

Which means if you profit (after costs) $50k a year in photography income it breaks down like this:
Net Profit = $50,000
Self employment tax = $7,650
Federal Income Tax (assuming a 28% tax rate) = $14,000
Take home "pay" after taxes = $28,350 (or $2,365 per month)

Most people don't realize that if you're self employed you have to pay anywhere from 45% to 55% of what you make back to Uncle Sam in taxes.

Now the other thing is that if you're self employed you MUST make estimated quarterly payments. If you underpay your estimated payments, you can be penalized at the end of the year. And IRS penalties are not pretty.

It's VERY important that you work with a qualified accountant to make sure you're jumping through all the hoops properly.

Karen

You are pretty close - your final formula is good but the way your arrived at the 45.3% is a little off.

The SE tax is correct at 15.3 but you will receive a deduction equalling one-half of your se tax. This effectively reduces the 15.3 to ~13 (15.3/2*.7). You also need to factor in any state income or sales taxes.

Yes, you are right. I didn't know how to come up to the right %% after deduction so I assumed that there's no deduction. It is always better to get something back than owe.




How do you do it if you do it for the first year? You can estimate to make something but what if you didn't make that number. Do they give it back to you?


Jeez, Uncle Sam takes roughly 50% from you. Looks like it is realy hard to make any money out of it...

Bwah hahahahha. Give it back? The IRS? *snicker* *snort* Hah.

Ok, no seriously. How do you estimate it? You look at what business you did that quarter and you estimate what your taxes will be. For example, say for the 1st quarter (Jan - Mar) you shot 5 weddings at $2000 each. You grossed $10,000. Figure your costs and overhead for everything is 40% or $4000. So your "profit" is $6000, right? So you estimate that you'll owe 43% of that in taxes, therefore your estimated figure is $2580. That's what you'd pay to the IRS when you file your Form 1040-ES quarterly.

Did you overestimate? Maybe at the end of the year you had more deductions than you thought you would, so you actually owe less. You have the option to get a tax refund, sure, but you also have the option to apply the overage to your next quarter's estimated payments. That's what I did every year when I was a Sole Prop- I never took money back, I always applied it to my next payment, which really helped my cashflow.

Karen

I've just put all my estimations into that calculator. I put 30K as desired annual sallary and 15 weddings per year and came up with the ~3800 per day of shooting. Actually I came pretty close to that number from the other way. Anyway, looks like if you charge less then this amount + cost of albums you are loosing money. Wow...