Forgot to set aside tax money one quarter and it came back to bite me hard

I was sitting on my porch in Austin last October thinking I had plenty of time before April, then I got that letter saying I owed $2,300 in penalties and interest. Now I keep a separate checking account and dump 30% of every payment in there right when it hits.

3 comments

3 Comments

ray_burns17d ago

Honestly 30% might be a bit high depending on your bracket.

quinn34117d ago

Heard a CPA say 25% works for most people but depends on your state taxes too.

keith16416d ago

Yeah that "depends on state taxes" part is actually the big one people sleep on. Like here in Texas we got no state income tax so 25% is probably overkill if you're in a lower federal bracket, but someone in California or Oregon where state tax can be 9-13% might need to bump that up closer to 30% just to be safe. And if you're self employed with that 15.3% self employment tax on top, 25% is definitely not enough even in a no tax state. I've seen people recommend saving 30-35% for side gig income and that actually lines up better when you do the math on SE tax plus federal.