Taxes on Straight Commission?

How much should you set aside for taxes if you work on commission?

QUESTION: Fantrea’s husband is working straight commission.  How much should they set aside for taxes?  And how should they set that money aside?

ANSWER:  Read what Norm Rollins says:

He should set aside 40 cents on every net dollar.  If he’s a 1099 commission salesman, he’s going to file a Schedule C income tax plus Social Security tax, which ends up being about 40% of his net income. 

Open a separate bank account in which you deposit your estimated taxes.  Don’t just dump the money in the family checking account.  As a matter of fact, do the following three steps:

1.    Open a separate checking account for all his commission.
2.    Any expenses he has related to the business – cell phone, business cards, travel – write the check out of that account.
3.    Anything left in there is profit.  Then set aside 25% - 30% of that profit and put it in another savings account for paying taxes.  You’re basically withholding on yourself.  Then when you go to pay your quarterlies, you’ll have the money.