Tax Question - Consulting

[Rathji]

I have started doing some consultant work on the side, on top of my full time (salaried) position. I am trying to figure out how much of my consulting fees I need to be setting aside for tax purposes. For example, using nice round numbers, say I was earning $50,000 salary with deductions etc taken off by my employer and brought in $1000 a particular month through consulting.

I am looking for a way to figure out what I should set aside for taxes every month, even if that amount varies, like $500 extra one month and $2000 the next.

Is this something that is easily done in a spreadsheet, or should I be finding a couple viable hobo's for Locke?

[First Lady]

I'm in a similar situation.

I ballpark what I will make over the entire year consulting, add it to my regular salary and then run it through this calculator.

https://www.simplepay.ca/canada_payr...calculator.php

I see what the difference is between what my employer is deducting and what I will pay in total.

I then get my employer to "top up" what they take off for tax. Or if you prefer you can just set it aside.

Obviously it's not 100% accurate because you likely will have some expenses to claim against your consulting income. Also your actual extra income may vary from your original projection.

[Kerplunk]

When I did my stint of full time consulting work (7 month contract), the accountant recommended putting 30% into savings for taxes and other fees that may come up.

[Jbo]

It varies...somehwhere in the neighbourhood of 25-30%. Im no Tax expert, just going off my father, has been a consultant for a number of years in engineering.

[#22]

Yup, around 30% would be my advice

[Rathji]

Taking a flat % sure seems like it would be easiest. I might go with 35% to be totally sure, then see how it works out at the end of the year.

Thanks.

[MoneyGuy]

Rathji, I have software to calculate taxes owing. If you want, PM me your income without the consulting fees and also with this income. (I don't know who you are.) I can run two sets of numbers and the difference is the extra taxes. Set aside a twelfth of that each month and you should be good, assuming it's not higher than expected and your employment income has the correct withholding taxes taken.

[Rathji]

I have software that can do that, plus FirstLady linked some above.

The problem, is I really don't know in advance what I will be earning over the course of the year. It might be $200 one month and $2000 the next. I would like a way to figure it out if one month I earned $500 and the next $1000. Of course, I know what I am hoping to earn, but who knows if it will end up being more/less than that.

I think the flat % will work well for that purpose for now, and once I get a good idea of how much income this will actually bring in, I can look for a more exact amount, using the method you said.

[GP_Matt]

You only need to do this for your first two years. On year three the government will estimate for you and send you a bill quarterly. They really don't like people saving the money throughout the year and paying a lump sum in April.

[AR_Six]

When you say "on top of my full time salaried position", are you consulting for someone other than your normal employer? I sense a potential PSB issue here...

[Rathji]

Yes, for someone in addition to my regular employer.

[Plett25]

Originally Posted by ar_six

i sense a potential psb issue here...

psb?

[AR_Six]

Personal services business... a lot of people attempt to operate as "contractors" for a single client via a corporation of which they are the sole shareholder and employee so that they can deduct business expenses. Recent tax changes have made that extremely risky and increased the likelihood that CRA will make it an audit priority. If Rathji is fine with his structure though and he's genuinely working for third parties he's probably fine but any time someone brings this scenario up in a tax context now I'm like "um are you sure you're really a consultant, legally?"

[Plett25]

I didn't see where the OP said his consulting business was being run through a corporation.

[AR_Six]

Also a fair point but they usually are, in order to take advantage of the significant deferral associated with it (25% rate) - though in this case, it may not be a significant enough amount of money to warrant it.

Anyway it's not what he asked so I apologize for the de-rail.

[Rathji]

I do work for multiple clients, so I don't think that what you are talking about has any bearing on me. I will look it up though, for sure.