Thursday, November 29, 2012


Q: In the last year I decided I would finally use my nail license and start working in a salon. I started out as a booth renter, and am happy I did, even with little to no clientele in the beginning. I am now working full time in the salon, paying rent and buying my own supplies. I have tried to do some research but can’t figure out a percentage that I should be putting aside for taxes. I live in Colorado if that matters. I have been setting aside 20% so far since I worked another full time job in the beginning of this year. So I’m not worried about owing this year, but I want to know what percentage I need to be saving from now on!

A: Without knowing the clients tax situation as a whole, it is almost impossible to answer this questions.  There are so many variables involved such as, Income, deductions, number of dependents, withholdings from another job just to say the least.

Just know that the taxpayer will have to pay income tax on all their taxable income (Adjusted Gross income – Exemptions - Standard Deduction or Itemized Deductions =  Taxable Income) Depending on what that amount is, the taxpayer can start anywhere from 15% Federal tax up to 35% Federal tax plus the applicable state tax.  Also, the taxable income earned from the booth rental will also have an additional 13.3% self employment tax.  For 2013, this will increase to 15.3%.  For example, in 2012 a single taxpayer in Colorado who makes $40,000 net income from booth rental with no other source of income and take the standard deduction would have total tax of $9,862 of federal and state tax or right under 25% of total income.

It is highly recommended that the taxpayer speak with their tax advisor prior to the end of the year and have some pretax planning done.  This way all the taxpayers income and deductions can be projected out to see what tax bracket the client is in as well as estimate the tax liability so there are no surprises on April 15th.