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Percentage of Gross

  • 1.  Percentage of Gross

    Posted 26 days ago
    I'm curious how is everyone who is self-employed (1-man field/shop technician) here paying themselves? Percentage of gross revenue? Salary? Hourly?

    What percentage of gross would be a reasonable owner's compensation (or take-home pay)?



  • 2.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 26 days ago
    If your self employed working out of you house/shop, you can keep everything you make after you pay the bills.

    Or you can set up a LLC, or a Sub Chapter 10 but I would suggest you contact a lawyer and accountant to help you set it up and figure out how you want to get paid. There are advantages to do either one.

    Wim.
    Sent from my iPhone




  • 3.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 26 days ago
    Well, you have to set aside taxes before paying yourself. I figure on paying myself no more than 60% of what I take in, by the time you figure federal, state, and self-employment (social security) taxes. Then take out any business expenses you have associated with that job. By the time all’s said and done, you may not get to keep more than 50% of your gross income.



    Benjamin Sanchez, RPT
    Piano Technician / Artisan
    (256) 947-9999
    www.professional-piano-services.com




  • 4.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 26 days ago
    I highly recommend establishing an LLC, taking about 1/3 from gross for salary. This way, you are eligible to receive added perks, such as tax benefits and the 2 recent PPP SBA forgivable loans. You can save $$$, and your business is very well organized.

    ------------------------------
    Greg Junker
    Greg Junker's Piano Shoppe, LLC
    Belleville IL
    618-971-9595
    ------------------------------



  • 5.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 24 days ago
    One of the reasons I got in the business was because I didn't want a "job." Working for someone else, getting a fixed amount of money for schlepping something 8-5 Monday through Friday. There is life outside the boss/employee arrangement. Most people can't imagine anything else, the idea doesn't occur to them. Making money doesn't have to come from a job.

    There are legal reasons for forming an LLC or other corporation structure, but I have always been a sole proprietor. I own every dollar I earn. It's not take-home pay, it's profit. As a sole proprietor, I own every dollar I take in.

    I tell would be technicians, "There are thousands of people out there who want to give you money to tune and maintain their piano. Don't make it hard for them!"

    ------------------------------
    David Stocker, RPT
    PNWRVP
    Olympia WA
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  • 6.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 26 days ago
    Treat yourself like an employee and pay yourself 50% every two weeks.

    ------------------------------
    Larry Messerly, RPT
    Bringing Harmony to Homes
    www.lacrossepianotuning.com
    ljmesserly@gmail.com
    928-899-7292
    ------------------------------



  • 7.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 26 days ago
    Few self-employed folk understand the fact that in order to "take home" $50,000 you must "earn" $100,000 (at least).  This FACT needed to be impressed on me by a mentor and it still took a while to truly sink in as reality, but it is well documented among those in economic and business circles. Everyone understands "overhead"...but it's the "hidden overhead" that most of us miss (because it's hidden...😉)

    Pwg

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    Peter Grey
    Stratham NH
    603-686-2395
    pianodoctor57@gmail.com
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  • 8.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 25 days ago
    If you're not incorporated then just pay your estimated taxes on time and don't worry about it. If you are planning to incorporate then talk to an accountant about the best way to structure your compensation.

    ------------------------------
    David Love RPT
    www.davidlovepianos.com
    davidlovepianos@comcast.net
    415 407 8320
    ------------------------------



  • 9.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 25 days ago
    And don't forget to feed your retirement funds regularly.

    ------------------------------
    David Love RPT
    www.davidlovepianos.com
    davidlovepianos@comcast.net
    415 407 8320
    ------------------------------



  • 10.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 25 days ago
    Don't forget that as a self-employed person, you pay an employee's share of the SSI tax AND the employer's portion too. And if you work your books to minimize your income tax, your eventual Social Security returns will also be diminished. There's always a "catch-22"!
    David Dewey





  • 11.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 25 days ago

    Estimated tax payments include self employment taxes. 

    Social security maxes out at a certain level so you should always pay as little in taxes as you can legally. That includes maxing retirement contributions into a SEP IRA if you can which are pretax payments to yourself. A lifetime of retirement contributions if managed reasonably well will always exceed what social security will contribute to your retirement. 

    But, of course, talk to your financial planner if you have a good one. 



    ------------------------------
    David Love RPT
    www.davidlovepianos.com
    davidlovepianos@comcast.net
    415 407 8320
    ------------------------------



  • 12.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 24 days ago
    Well, yes, the estimated tax payments include the self-employment tax (penalty?), I was just pointing out that if you are used to being an employee, you might not realize how much MORE you have to pay as a self-employed person, which reduces your net income (take-home to employed folks).
    As one person told me, "Being self-employed means you are the boss, and you can work only half-days if you want to-and on those half-days, you can decide which 12 hours you will work."
    David Dewey





  • 13.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 24 days ago
    I would recommend a Roth over traditional IRA if you can. Assuming you have more than 10 years before you plan on pulling from the retirement account, you'll end up with more money if you pay the taxes on the contributions now rather than later. And if you have 20 years or more, the difference could easily be worth six figures. If you put it in a traditional IRA, the contributions and growth will be essentially tax deferred but not tax free. With a Roth IRA, the contributions will be taxed now but the growth will be tax free. Which is better depends on how long you plan to leave the money before using it.

    ------------------------------
    Benjamin Sanchez, RPT
    Piano Technician / Artisan
    (256) 947-9999
    www.professional-piano-services.com
    ------------------------------



  • 14.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 24 days ago
    Only 12 hours! Ha ha

    You are correct, the self-employment tax changed back in the 80s so that SE individual had to pay both employers and employees portion effectively doubling the SE tax. You do get to deduct half of the self-employment tax from your income but it's not quite adequate compensation for the tax increase on self-employed individuals.


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    David Love RPT
    www.davidlovepianos.com
    davidlovepianos@comcast.net
    415 407 8320
    ------------------------------



  • 15.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 22 days ago
    Benjamin,

    I've always heard that the guiding information on whether to contribute to a Traditional IRA vs a Roth IRA is what your tax bracket is now compared to what it will be in retirement when you need to withdraw. For most, retirement income is quite low compared to their working years, so their tax bracket is lower in retirement, favoring a Traditional/SEP IRA. If tax brackets are the same before and after retirement, then it's a wash- you either pay the taxes up front (Roth) or defer until later (TIRA/SEP).

    All things being equal, the growth of the money doesn't change- you just either paid the taxes on it before or after. In the case of the Roth, if you want to put $750 in, you really started with $1000, paid 25% (or whatever) in taxes and had $750 left to contribute. With a TIRA, you put the full $1000 in with no taxes paid. During your retirement, when it comes back out, you'll then pay the 25% (or hopefully less).

    Growth is the same. Say your money doubled. Roth = $1500, no taxes need to be paid upon withdrawl. TIRA = $2000; if taxes need to paid then it's $1500 (25% tax) upon withdrawl (same as Roth), but hopefully if one is in a lower tax bracket, the amount might be $1600 or $1800 for example.

    Now sometimes, one can max out their SEP, after which they can then also contribute to a Roth (depending on income), and that's a great idea.

    Clear as mud? ;) Hope this helps someone.

    Marc






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    Marc Abram
    Highland MD
    202-468-8270
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  • 16.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 22 days ago

    Clear as mud basically describes the entire tax system, LOL!

    The way my financial advisor explained it was this. For example, if we're talking about long term investments (10+ years), that follow the stock market average (11% rate of return), and you put in enough to bring your retirement to $1,000,000 (which mathematically is not difficult to do if you start early enough), then that one million is either tax free or taxed. Even if your tax bracket is lower, say 14 percentile, you'll pay $140,000 in taxes when you pull retirement. Or, you get to keep all the one million without giving any to congress. As she explained it, which is better depends on how much time you have, and if your projected amount would be big enough to justify paying the taxes now.


    If anyone wants more details I'd like to refer you to my financial advisor. She knows way more about this stuff than I do and would be able to explain it better. PM me if you want her contact info. 



    ------------------------------
    Benjamin Sanchez, RPT
    Piano Technician / Artisan
    (256) 947-9999
    www.professional-piano-services.com
    ------------------------------



  • 17.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 22 days ago
    "Clear as mud basically describes the entire tax system" Haha- indeed!

    Unfortunately, I'm not sure your financial advisor is entirely correct. ;) Timeline really has nothing to do with it. It's all math and percentages. It seems like it might be more but that's if you compare say, $1000 in a Roth vs $1000 in a TIRA. That's a common way to think about it but really, for an apples to apples comparison, you need to start with the same untaxed money. Assuming 14%, your $1000 turns into $860 for your Roth (because you need to pay tax on it) vs the full $1000 for TIRA/SEP. Obviously the $1000 would grow more given the same % return but then it's taxed later. If the tax bracket is lower in retirement when taxes come due, you end up with more in your pocket with a TIRA. If the same tax bracket, then no difference. Yes, your TIRA is taxed, but it also grew more because it had a higher starting amount. The gov't wouldn't allow that much of a free lunch. Please check my math on this- I just fail to see how it can be any other way, but I'm happy to be schooled otherwise.

    I'm sorry for going a bit off topic...

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    Marc Abram
    Highland MD
    202-468-8270
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  • 18.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 22 days ago

    Hi Marc,

    There's different schools of thought about investing. Before we get into the numbers, I'd like to note a point I heard recently. In a study I read, it made the point that regardless of which method of investing you do, the important thing is that you invest! As regularly as you can. 

    Let's lay out the assumptions first. Let's assume you invest $6,000 every year for 30 years. Your mutual funds get the average stock market return of 11% every single year for ease of math. You're in a 25% tax bracket. 

    Traditional IRA mutual fund: You'll save $45,000 in tax deductions over the 30 years. ($6,000 at 25% x 30 years.) Using an online compound interest calculator without background adjustments, you end up with $1,194,125. Your tax bracket of 25% means you pay $298,531 in tax. Minus the $45k you saved over the years, your tax amount is $253,531. 

    Roth IRA mutual fund: You have to make $8,000 to invest $6,000 with the tax bracket. Essentially you don't get the deduction, which means you have to pay an additional $45k in taxes over the years. You also had to make more ($60,000 over 30 years), which means you lose out on $105,000 total over the 30 year period. But you save $298,531 in taxes at the end. When all is said and done, you save $193,531 by choosing the Roth option - at the end of 30 years, not during that period.

    Obviously this example won't hold up to real life exactly. The market doesn't make exactly 11% every year, nor is it likely one will invest exactly $6,000 a year for 30 years. 

    Again, what's best I think depends on the individual situation. The important thing to remember is, regular investing makes you a lot wealthier at retirement regardless of which method you choose. 



    ------------------------------
    Benjamin Sanchez, RPT
    Piano Technician / Artisan
    (256) 947-9999
    www.professional-piano-services.com
    ------------------------------



  • 19.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 21 days ago
    Hi Benjamin,
     
    Thanks so much for clarifying. Theoretically, it's not quite apples to apples because in your example, you're comparing $8000 vs $6000. I think if you compared $6000 (which turns into $4500) vs $6000, it would end up the same at the end, all things being equal. (Technically you would pay more taxes with the TIRA, but it also would have grown an equal amount greater because you put in $6000 vs $4500...I think.)

    Practically, however, the gov't does allow you to put 'more' into a Roth (starting with $8000, which turns into $6000), which would allow it to grow more. I'm pretty sure that's where the difference in your example is coming from. So I guess, until the gov't figures this out, and your tax bracket is the same in retirement, and you can't put more than $8000 into a 401k or SEP, then maxing out your Roth may be the best option. I also think your illustration is a great example of the power of compounding!

    I found this online calculator:
    https://iqcalculators.com/calculator/roth-versus-traditional-ira/
     
    Marc
     






  • 20.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 21 days ago

    Hi Marc,

    You challenge me to explain why I believe what I believe, and I appreciate that. Having a civil debate is increasingly rare these days, and I'm enjoying it. 

    I would argue that it is an apples-to-apples comparison because the amount of money being invested is the same. The difference is the hidden costs, which exists because after-tax dollars cost more than pre-tax dollars. But, for sake of debate, let’s assume you’re right and we need a different math equation.

    Let's run the numbers you gave me for the Roth. Same scenario as before, 25% tax bracket and 30 years at 11%. Let's change the $6000 to after tax dollars, which makes it $4500. 

    Putting that in the compounder, you get a total of $895,593, tax free.

    Using the numbers from before, with a Traditional you get $1,194,125 - $298,531 for taxes = $895,594. In this example, you get $1 more for investing in a traditional rather than a Roth. Ha! 

    If that's what this debate boiled down to - $1 - wow! I guess it goes back to what I said before: the most important thing isn't the method you choose; it's that you actually invest in your retirement. 



    ------------------------------
    Benjamin Sanchez, RPT
    Piano Technician / Artisan
    (256) 947-9999
    www.professional-piano-services.com
    ------------------------------



  • 21.  RE: Percentage of Gross

    Registered Piano Technician
    Posted 21 days ago
    Whew! Thanks for checking my math and equally holding my feet to the fire. I agree with everything else you said about getting the savings going. And your argument certainly holds for Roth vs TIRA if you're maxing it out, which I had never really thought about in that practical way, so thanks. I appreciate the back and forth.

    Now back to our regularly scheduled program...

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    Marc Abram
    Highland MD
    202-468-8270
    ------------------------------