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I have a sole proprietorship and I'm helping out a friend. We have an agreement where I told him what I needed to net each month and I can invoice for that.

If I need to net $6000 each month, how do I calculate the gross amount that needs to be invoiced so I can end up netting $6000?

I've seen a lot of calculators on line for the self employment portion, but also need to factor in state (CA)/fed income taxes, as well as anything else I might be missing. This doesn't need to be exact, I just want to be able to generate an invoice for more than $6k so that by the time I pay taxes on 2019, I will have taken home the $6k that month.

UPDATE

Here's what I've tried so far:

Calculate Self Employment Tax

(6,000 * .9235) * .153 = $847.77

Calculate Income Tax

(6,000 + 847.77) * 100/(100-12) = $7,781.56

I would need to invoice for $7,781.56

Am I getting close with this line of thought?

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  • Do you have other income?
    – Hart CO
    Commented Feb 12, 2019 at 0:05
  • This depends on the applicable tax percentages. If your marginal tax rate is p%, then you want x*(1-p/100)= 1000, or x = 1000*100/(100-p)
    – Hagen von Eitzen
    Commented Feb 12, 2019 at 0:05
  • For these purposes, no, I will not have other income.
    – djibouti33
    Commented Feb 12, 2019 at 0:06
  • @djibouti33, that's not how taxes work. Other income is required to determine which marginal tax bracket this income will fall in to.
    – quid
    Commented Feb 12, 2019 at 0:14
  • @quid, absolutely. I meant to say I won't have other income outside what I'm billing my friend, so I can project for 12 months to calculate my marginal tax rate.
    – djibouti33
    Commented Feb 12, 2019 at 0:19

1 Answer 1

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I figured out a solution that works for my purposes.

  1. Figure out your Federal effective tax rate
  2. Figure out your State effective tax rate
  3. As a sole proprietor, you're responsible both sides of the self employment tax, 15.3%. Determine if you want to use all or 1/2 (what you'd pay if you were a W2 employee. My accountant recommended I use half, 7.65%)

Then:

Net / (1 - (Fed + State + Self Employment)/100)

So if I wanted to net $6000, with Fed=15%, State = 5%, and Self Employment =7.65%:

6000/(1-(27.65/100)) = $8,293.02

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