MODULE 7
1. Paycheck Breakdown
As self employed singers, we have a lot of 1099 contracts, which means we are responsible for holding on to some of our income to pay our taxes. Preparing for taxes is super important, so let’s dig in:
Preparing for Taxes
Don’t forget to save! The most common mistake 1099 employees make is to spend their paychecks before setting aside a portion for taxes. If you fail to prepare, you’re met with a huge, unexpected bill when taxes are due.
I suggest trying to set aside 25-30% of your paycheck just for your taxes. You may not end up owing quite 30%, but it’s better to be safe than sorry. If you’re able to set aside this amount, you can feel safe and won’t be caught off guard when your taxes are due.
Put your tax savings in a high yield savings account so it can grow! Remember the accounts we talked about in Module 3? This is a perfect place to store your money set aside for taxes. The money will grow in the meantime, leaving you with a “refund” after you’ve paid them.
Using Your Paycheck Breakdown
On page 19 of your workbook, I’ve included a breakdown for you to use on your paychecks. This already includes important items such as your taxes, savings, needs, wants, and retirement (we’ll get into that soon). This can be a handy tool for you to decide how to separate your paychecks, and to make sure you don’t forget to save for something important. This breakdown does NOT have to look the same for every paycheck! Use your more substantial paychecks to cover more of your long term savings, and your lower checks to cover your more short-term needs. However, I do suggest trying to be consistent with saving 25-30% for your taxes.
Your Challenge for This Week…
Make sure you have a dedicated section of a high yield savings account for your taxes. And start to fill out your paycheck breakdown in anticipation of your next expected payday. Tax season no longer has to feel scary!