how much would one take home making $120k ....question about taxes

[FuckRx]

so this is more a tax question. If I were to make $120k/yr and living in California what would my take home be? Let's assume I'm an independent contractor so I would be responsible for everything. Let's say I was able to write off only a few items like cell phone and some car expenses. I know I'm being vague but I'm curious how the numbers are calculated. I didn't find a helpful calculator online and none of them took state taxes into account. I guess I would account for some tax-deferred money too since I think I could then contribute to a solo 401k right?

[mxt0133]

I use this to imagine I mean do salary scenario analysis when considering potential offers:

https://www.paycheckcity.com/calculator/salary/

[zurich78]

Yeah, it's really hard to say.  I mean there's 401K factors, any other pre-tax deductions, do you have an employee stock purchase program you plan to participate in, are you married, do you have kids, do you own a home, what about deductions for healthcare, etc?

I make a little more than that now, and I do live in California as well, and I can tell you when I made that money, before I owned a home, as a single man with no kids, it was around $3K per paycheck.

[Cheddar Stacker]

I don't know too much about you, but if I remember the facts are single, high earner, self-employed income, and you have a CPA. The CPA would be the best person to ask since he knows your situation best, but I'll give it a shot based on what I know/think:

 Income                   120,000
 Minimal expenses      10,000
 Net SE Income        110,000
 Solo 401K                 17,500
 1/2 SE Tax                  7,771
 Taxable income         84,729
 
 SE Tax                     15,543
 Federal Tax              17,120
 California Tax           11,015
 Total Tax                  43,677
 Net Take Home         48,823

Pretty ugly huh? A few things will really hurt you: 1) You live in California. I calculated that tax at 13%, but I'm unsure that's accurate and I'm not sure exactly what expenses count against your income there. I don't do a lot of California returns, so I'm not certain about that tax 2) Self-employed income sucks. You have to have more expenses to reduce this income, or go W-2 vs. 1099 and 3) Most of your federal income will be taxed at 25% since you are single.

The take home was calculated as $120,000-10,000-17,500-43,677. You could argue you are really keeping the $17,500 so you could add that back if you want. You could also add back the $10K auto and cell phone since you would likely have those anyway? Any way you cut it though, it's ugly. Self-employed in California equals shitty taxes.

[foobar]

13% is for income over 1 million. He would be in the 9.3% bracket which starts around 35k if memory serves.   The exact numbers can change a bit and you can manipulate them a lot depending on your circumstance.  For example if he put 40k into the 401(k) instead of 17.5k his federal taxes would drop to about 10k and his CA taxes would be more like 6k. Find a way to drop the income another 10k (i.e. HSA, more business expenses,..) and you can stick another 5500 into a deductible IRA and cut your taxes even more.  Or he could be an S-Corp and only pay a salary of 50k to avoid payroll taxes (couldn't put as much in the 401(k) though).


There is nothing bad about self employment. You just have to realize that 120k as a self employed person is not the same as 120k as an employee when the company is paying an addition 7k in employment taxes and 6k in health care for you.

I don't know too much about you, but if I remember the facts are single, high earner, self-employed income, and you have a CPA. The CPA would be the best person to ask since he knows your situation best, but I'll give it a shot based on what I know/think:

 Income                   120,000
 Minimal expenses      10,000
 Net SE Income        110,000
 Solo 401K                 17,500
 1/2 SE Tax                  7,771
 Taxable income         84,729
 
 SE Tax                     15,543
 Federal Tax              17,120
 California Tax           11,015
 Total Tax                  43,677
 Net Take Home         48,823

Pretty ugly huh? A few things will really hurt you: 1) You live in California. I calculated that tax at 13%, but I'm unsure that's accurate and I'm not sure exactly what expenses count against your income there. I don't do a lot of California returns, so I'm not certain about that tax 2) Self-employed income sucks. You have to have more expenses to reduce this income, or go W-2 vs. 1099 and 3) Most of your federal income will be taxed at 25% since you are single.

The take home was calculated as $120,000-10,000-17,500-43,677. You could argue you are really keeping the $17,500 so you could add that back if you want. You could also add back the $10K auto and cell phone since you would likely have those anyway? Any way you cut it though, it's ugly. Self-employed in California equals shitty taxes.

[Gin1984]

I don't know too much about you, but if I remember the facts are single, high earner, self-employed income, and you have a CPA. The CPA would be the best person to ask since he knows your situation best, but I'll give it a shot based on what I know/think:

 Income                   120,000
 Minimal expenses      10,000
 Net SE Income        110,000
 Solo 401K                 17,500
 1/2 SE Tax                  7,771
 Taxable income         84,729
 
 SE Tax                     15,543
 Federal Tax              17,120
 California Tax           11,015
 Total Tax                  43,677
 Net Take Home         48,823

Pretty ugly huh? A few things will really hurt you: 1) You live in California. I calculated that tax at 13%, but I'm unsure that's accurate and I'm not sure exactly what expenses count against your income there. I don't do a lot of California returns, so I'm not certain about that tax 2) Self-employed income sucks. You have to have more expenses to reduce this income, or go W-2 vs. 1099 and 3) Most of your federal income will be taxed at 25% since you are single.

The take home was calculated as $120,000-10,000-17,500-43,677. You could argue you are really keeping the $17,500 so you could add that back if you want. You could also add back the $10K auto and cell phone since you would likely have those anyway? Any way you cut it though, it's ugly. Self-employed in California equals shitty taxes.

I think, from doing my mother's tax in California it should be 10% at that income level (which was approx. what my mom earned).  But that would be trusting my very bad memory, lol.

[Cheddar Stacker]

foobar and Gin1984 thank you for the correction on the tax rate. I think my rate came from hearing about Phil Mickelson (Pro Golfer) bitch about paying nearly 60% in Federal and California taxes.

I agree with foobar that there are many ways to reduce that SE income, and being self employed can be great. I was just trying to give the good doctor some rough numbers based on my perception of his situation.

Be careful with the S-Corp and paying a low salary. It's a great way to avoid SE tax, but it's also a tier 1 issue with the IRS and they have the power to deem a low salary as unreasonable which could derail that strategy. It's worth doing, just make the wage reasonable.

[viper155]

I don't know too much about you, but if I remember the facts are single, high earner, self-employed income, and you have a CPA. The CPA would be the best person to ask since he knows your situation best, but I'll give it a shot based on what I know/think:

 Income                   120,000
 Minimal expenses      10,000
 Net SE Income        110,000
 Solo 401K                 17,500
 1/2 SE Tax                  7,771
 Taxable income         84,729
 
 SE Tax                     15,543
 Federal Tax              17,120
 California Tax           11,015
 Total Tax                  43,677
 Net Take Home         48,823

Pretty ugly huh? A few things will really hurt you: 1) You live in California. I calculated that tax at 13%, but I'm unsure that's accurate and I'm not sure exactly what expenses count against your income there. I don't do a lot of California returns, so I'm not certain about that tax 2) Self-employed income sucks. You have to have more expenses to reduce this income, or go W-2 vs. 1099 and 3) Most of your federal income will be taxed at 25% since you are single.

The take home was calculated as $120,000-10,000-17,500-43,677. You could argue you are really keeping the $17,500 so you could add that back if you want. You could also add back the $10K auto and cell phone since you would likely have those anyway? Any way you cut it though, it's ugly. Self-employed in California equals shitty taxes.

Don't forget all the after net taxes too...real estate, capital gains, sales, gas, tolls....etc. etc. etc. - I hate big govt and its ever growing "do nothing" constituents.

[FuckRx]

Yeah, it's really hard to say.  I mean there's 401K factors, any other pre-tax deductions, do you have an employee stock purchase program you plan to participate in, are you married, do you have kids, do you own a home, what about deductions for healthcare, etc?

I make a little more than that now, and I do live in California as well, and I can tell you when I made that money, before I owned a home, as a single man with no kids, it was around $3K per paycheck.

3k every 2 weeks or 3k/mo?!

[FuckRx]

13% is for income over 1 million. He would be in the 9.3% bracket which starts around 35k if memory serves.   The exact numbers can change a bit and you can manipulate them a lot depending on your circumstance.  For example if he put 40k into the 401(k) instead of 17.5k his federal taxes would drop to about 10k and his CA taxes would be more like 6k. Find a way to drop the income another 10k (i.e. HSA, more business expenses,..) and you can stick another 5500 into a deductible IRA and cut your taxes even more.  Or he could be an S-Corp and only pay a salary of 50k to avoid payroll taxes (couldn't put as much in the 401(k) though).

got it, this is very helpful.

[Gin1984]

foobar and Gin1984 thank you for the correction on the tax rate. I think my rate came from hearing about Phil Mickelson (Pro Golfer) bitch about paying nearly 60% in Federal and California taxes.

I agree with foobar that there are many ways to reduce that SE income, and being self employed can be great. I was just trying to give the good doctor some rough numbers based on my perception of his situation.

Be careful with the S-Corp and paying a low salary. It's a great way to avoid SE tax, but it's also a tier 1 issue with the IRS and they have the power to deem a low salary as unreasonable which could derail that strategy. It's worth doing, just make the wage reasonable.

My mom made about that, took out her $20500 for 401k (and catch-up) and took home about $60000/year plus normally got a bit back from the feds and paid a little less than she got back, to the state.  With the SE tax I could see paying 50%, but otherwise, you would have to make a lot to get up there. 

[zurich78]

Yeah, it's really hard to say.  I mean there's 401K factors, any other pre-tax deductions, do you have an employee stock purchase program you plan to participate in, are you married, do you have kids, do you own a home, what about deductions for healthcare, etc?

I make a little more than that now, and I do live in California as well, and I can tell you when I made that money, before I owned a home, as a single man with no kids, it was around $3K per paycheck.

3k every 2 weeks or 3k/mo?!

Haha.  Per paycheck.  So around $6k/mo though some months paid 3 times.  I'm rounding here, but that is close enough since everyone's situation is different.

[Wile E. Coyote]

The California tax should be a deduction too, shouldn't it?

[foobar]

Standard deduction is 6200 so unless you own a house, you don't get much credit for most of it.

The California tax should be a deduction too, shouldn't it?

[randymarsh]

With the Solo 401k, the employer (which is OP is this scenario) can contribute 25% of employee compensation. If OP pays themselves 100K, they can contribute $17,500 as themselves and another $25,000 as the employer if I'm reading the rules correctly. That would reduce tax liability by a decent amount.

[foobar]

It is 25% if you get paid on a w-2. It is 20% if you don't if memory serves. the 20% case is easy (110*.2 = 22k). The 25% case is messier (you need to keep money to pay the 25% and self employment taxes) but it tends to work out to about the same number.

With the Solo 401k, the employer (which is OP is this scenario) can contribute 25% of employee compensation. If OP pays themselves 100K, they can contribute $17,500 as themselves and another $25,000 as the employer if I'm reading the rules correctly. That would reduce tax liability by a decent amount.

[Wile E. Coyote]

Standard deduction is 6200 so unless you own a house, you don't get much credit for most of it.

The California tax should be a deduction too, shouldn't it?

They are in CA, so it will be more than 6,200.  Regardless, the standard deduction wasn't backed out of the calc either, so all of the state tax should be deducted.

[foobar]

I didn't notice before but you are way over estimating CA taxes as they are highly progressive. For an employee (I think they let you write off half of payroll taxes if you are self employed and pay your self as an individual but I never encountered that)
120k of income for a single person =8722
100k of income 6860
80k of income  5002

Now this are some other taxes you will pay (SDI, auto reg) but if you only taking home 90k, it is likely you are using the standard deduction and if you take home 100k you get to write off ~1000 more in taxes (more if you have a real nice car) than the standard deduction which saves you 250. TheI had assumed you ran the numbers with taxcaster but I see now they are all a bit high.  It should be noted how little CA changes the numbers.  The ~34k of federal taxes is the same no matter where you live. You save at most 6k (well maybe more since the sales tax is absurd also) over other states.

Standard deduction is 6200 so unless you own a house, you don't get much credit for most of it.

The California tax should be a deduction too, shouldn't it?

They are in CA, so it will be more than 6,200.  Regardless, the standard deduction wasn't backed out of the calc either, so all of the state tax should be deducted.

[Cheddar Stacker]

Yeah sorry guys, ran it in excel, missed standard deduction, and don't know CA taxes very well. Thanks 4 corrections

[FuckRx]

this is all very helpful.
So in my scenario:
-no mortgage
-single

It sounds like I would save more being paid as an independent contractor (1099) vs employee (W2).
I'm trying to figure out which job with what income would be a better choice for me.

[brewer12345]

If all of this is really important, buy a copy of TurboTax and fill out a pro forma tax return.  You can fill it out exactly to your circumstances and get a really good idea of what the net will be.

[FuckRx]

oooh pro forma... had no idea there was such a thing.
So a 1099 for 120k income that i ran on turbotax came out owing $39,368 federal and $7,608 state. that's without any deductions. i'll post some reasonable deductions for my line of work and see if those numbers will drop. so that would be a take home of $73,204.

[FuckRx]

I wasn't able to figure out how to add a tax-deferred deduction so without that and just basically deducting expenses it comes out to $33,124 federal and $6,143 state. For a total of $80,733 take-home.

[FuckRx]

So this is a piggyback question... how much can i put away tax-deferred as an independent contractor? is it the 17,500 like a 401k or higher? which retirement plan option can i use. i see keogh, SEP, SIMPLE listed.

[brewer12345]

So this is a piggyback question... how much can i put away tax-deferred as an independent contractor? is it the 17,500 like a 401k or higher? which retirement plan option can i use. i see keogh, SEP, SIMPLE listed.

We use a solo 401k.  You can contribute 17.5k plus 20% of your net (less half of self employment taxes) if you are a sole proprietor, 25% if you have an LLC or S corp.  There is a limit, but it is pretty high (50k?).

[kkbmustang]

So this is a piggyback question... how much can i put away tax-deferred as an independent contractor? is it the 17,500 like a 401k or higher? which retirement plan option can i use. i see keogh, SEP, SIMPLE listed.

We use a solo 401k.  You can contribute 17.5k plus 20% of your net (less half of self employment taxes) if you are a sole proprietor, 25% if you have an LLC or S corp.  There is a limit, but it is pretty high (50k?).

For 2014 the max is $52k. See http://www.irs.gov/Retirement-Plans/COLA-Increases-for-Dollar-Limitations-on-Benefits-and-Contributions

But that number is COLA adjusted each year. The rule is actually the lesser of 100% of compensation (as defined by the plan) or $52k. Source: Internal Revenue Code section 415.